You seem to be referencing Stephen Banfield. I've always thought that he simply misunderstood what Sondheim said or wrote to him. As a 13-year-old seeing the show seeing the show, it was totally clear to me that she was not singing her old Follies song. As you say, it's in the direction. Prince's direction left no doubt (at least no doubt in my mind).
Yes, some confusion comes from the original lead-in. Which may be part of the reason why Goldman later revised it more than once.
Having said that, the song was very confusingly presented in the Roundabout production, using the last revised lead-in that (I think) was supposed to clarify things.
