You care because you are human.
It sounds like you care about her because she's a good person deep down, just as you are. you also want to save the relationship, because if you didn't you wouldn't be posting here. The thing to do is get into her world, find out why she so sarcastic, controlling and nasty compared to her normal caring self. There has to be a reason why she's like that, and it's not because she's strong. Strong people don't need to control a situation using sarcasm and nastiness, so there's something going on that's making her weak.
Assertiveness is being emotionally strong in the face of everything people throw at you, having so much respect for yourself and other people that you can stand up for yourself and what's really important. Use your personal strength to call her our on her ♥♥♥♥♥♥♥♥. Tell her that she's not "honest" she's just nasty. Tell her that she's judgemental and a bigot. Then ask her why? Ask her, "I know you are a nice friendly person at heart, so why are you so sarcastic and nasty some the time?"
As for when to break it off, it's never the situation that breaks up a relationship, it's always the attitude and long running behaviour that does it. It all comes down to respect. When a person has no respect for another, there can be no honest relationship there because there's no foundation for trust, mutual sharing or meaningful interaction. There's no point being in a relationship without respect. So you have to ask yourself, does she respect you? Then use that to decide. In the end, it's up to you.
For myself, I've only broken a friendship with one person. He kept aggressively pressing an issue I was having in my life and judging me for it to the point of condemning me for something I couldn't immediately change. He threatened me and said many disrespectful things, at it was at this point when I realised he was more invested in judging me rather than having a friendship with me. It was then I politely turned around and asked him not to be my friend any more. It was not a pretty scene after that, but it didn't start off pretty either. Since then, some our mutual friends have stayed friends with him and the stories they tell means he hasn't changed. I definately don't regret that choice, it was definately the right thing to do.