Hah! I'm with Sassy on this one...
....I would confront the chic head on. Course, that's the italian in me. But it's better than having your name slandered. Unfortunately, you can't control what people think...free will sucks sometimes....however, you can control the situation. Confront her with the upper hand...(no not literally...can't pound the chic) be the bigger gal. Tell it to her straight...hell, befriend the hell out of her in front of everyone...take it to the next extreme and call her over to you when you're talking to the guy she's into. Make it so darn obvious that what she's gossiping about and thinking is so way OFF...you'll end up embarrassing the poo out of her....just because you were being friendly. Sometimes that saying kill 'em with kindness....pays off BIG time. If that doesn't work, break it down old school for her...meet her in the locker room. No mercy. Heh. (if only we could settle things that way these days)