Her disability needs to impact her education in some way. If she is getting good grades and isn't affected socially, she probably isn't being educationally impacted at this time by her disability.
At this time she is not affected socially. She is really good at memorizing things. Spelling is a breeze for her. Now she is spelling them correctly but still not saying them correctly.
It sounds like she's not substituting her letters any more. How is her overall articulation? To disqualify her, they speech therapist should probably re-do testing to show that she is articulating appropriately.
SHe is still substituting but not like she was. She is currently working on using K,G,Sh and Th to help with her communication.
Grades do not necessarily disqualify a student but it can be a factor. Students are typically pulled out of class for speech therapy and her participation in class with feedback on her articulation issues may be all she needs.
Her grades in the beginning of the first quarter was what brought the testing up again. I honestly feel if she was making good grades then she would be in speech.
I would at least want information on how her articulation is and if you think it's still significant, you can ask for the speech therapist to re-evaluate this area to show she no longer qualifies.
You don't need to be adversarial but at least have complete information.