There are two researchers who have conducted the most important work on false memory: Beth Loftus and Stephen Ceci. None of their work supports the notion of multiple, mutually exclusive false memories.
It is up to the jury to decide if the false accuser is a liar or is insane.
No, first it is up to the prosecutor to make a determination that the defendant can actually be convicted beyond a reasonable doubt. If the prosecutor does not believe it, it will never go to a jury because it will never go to trial.
Nobody elected ladyjane as prosecutor. It's not your call. The prosecutor has an ethical duty only to bring to trial those cases that they believe they can win because there is sufficient evidence to convict the defendant beyond a reasonable doubt.
The AG seems to think he cannot do so. I'm not sure that it is the AG's call. Technically, until the AG asserts a conflict of interest, the ball is back in the Durham county prosecutor's office. Technically at this point it is (amazingly enough) Nifong's call until he either recuses himself, the court recuses his office, the AG asserts jurisdiction or he is removed from office.