I'm really glad that you wrote here asking for some advice and hope that it helped to write about what's been going on for two years now, it sounds very difficult because, as you say, it's been your friends and your reality all this time. Sounds like you want to support your friend through this, which I find amazing. I've recently come to the realisation that I 'have' a factictious disorder in that I lie to some people about emotional problems. For me the thought of anyone finding out that I do this and confronting me is very scary indeed. I guess I would feel like a little child who has been found out and is being told off. So my first thought would be that if you did decide to confront, that you do it gently, which I'm sure you're already aware of!
My next thoughts were that I would be scared to lose you as my friends and support system. I think i hear in your post that you do still want to continue being friends with your friend and maybe continue supporting her? If this is the case I would say it's very important to point this out to her. Tell her that although she may not have cancer, that she is still ill and deserves your friendship and help regardless. Maybe pointing out that her lies have caused you worry and concern and that while you dont condone it (am maybe putting words in your mouth here, but it's just what I think myself!), you can understand that she had reasons for it and that it doesn't take away from you caring for her as a person. But that you'd like her to be honest with you...
Again i don't know if all of this is just what I personally would like if anyone should ever confront me. I guess my first reaction would be to deny it all. I would be so hurt that someone would think that of me (despite the fact that it's true!) but it would come more of a place of being ashamed, so deeply ashamed. I'm guessing her self esteem is rock bottom, maybe she feels she doesn't deserve attention, care, support, friendship. I do hear that you're worried confronting her may leave her feeling she has no option but to isolate herself and maybe even end her life. I don't want to sound harsh but in my mind, if you gently confront her, tell her that you do still care for her and are here for her should she want your support (for real things!), that she doesn't have to be alone with this, etc. Well, if you tell her all that and she still decides to isolate herself (maybe through shame of what she's done) I think that's her choice. She may well just withdraw from your friendship (again, maybe through shame) but would most likely, in my limited opinion, make friends with someone else or move house, etc. to start the lie up again with someone else. It would potentially be very difficult to sit back and watch, but i guess it's her decision.
In my mind though, having someone who actually knows what I've done, who truly knows the lies that I've told and yet still is offering to be my friend, well, that would be just amazing. I personally would find it so very difficult to face the person again though and if I was feeling depressed/low etc i'm not sure i could bring myself to contact the friend, but I'm wondering if all that ould be worked through if both are willing. Of course in this reply I have assumed that you do want to continue being her friend. If not then just ignore all that I said with regards to friendship, but I would still stand by what I said with regards to being gentle, etc. I wouldn't hold it against any of my friends if they confronted me but then said that due to the concern and hurt i've caused them that they feel, for their own wellbeing, they can no longer be friends with me. Sure it would hurt like hell, but i wouldn't hold it against them as afterall we are all responsible for our actions and that would be the consequence of my lies.
I'm sorry for going on in this reply. I'm not sure if any of it has been helpful in the slightest as I'm just thinking outloud. I do hope that things go well for you and your friend. Would you confront your friend alone or with your other friend there too? It may be worth thinking about that.. like would it be easier for you both to do it together, or could it be seen as you ganging up on her? Or it could be good to have eachother to bounce ideas off and deal with the potential backlash of it. Also, i wonder if your friend would consider therapy? Of course she'd need to admit that she has been lying and that she actually wants help. Depends where she is emotionally really. Anyway, good luck and if you can/want please let us know what you decide.