What does she think of me now? (WARNING: Long but please read!)?

Have you talked to her about this. That is one of the best ways to deal with this. Females can be strange sometimes. She could have saw you as a friend & nothing more. When she started to hang out with this other guy (& started liking him) she maybe thought that to make things work, she would have to pull away so this guy wouldnt think that you two were together. So talk to her, tell her how you feel about her & the situation.. :)