1. It is legal to stay and adjust status if that was not her intent initially when she entered the U.S. to stay and adjust status.
Plans change and life happens, so a tourist who enters the U.S. initially for tourism (with no immigrant intent so far) and meets by chance the love of his/her life and happens to marry by the end of the 90-days granted by the ESTA can totally do the AOS once married.
In your case however, you and your fiancée clearly have the immigrant intent for her even before she arrived in the U.S., therefore it is totally illegal.
When your fiancée arrives to the U.S. POE, the CBP agent will likely ask her the reason of her visit.
She can say she is here to marry, or lie and says she is here for tourism purposes or visit you as a "friend". The CBP agent may get suspicious and asks what your relationship to her you are, and if it is discovered that you are engaged, then she will be under scrutiny, because although coming to get married is not illegal, the CBP is always concerned whether she will leave.
So if she decided to be honest from the beginning and say she is here to get married, they will assess whether her plan to leave after the wedding. Two options:
A. Be honest and say you intend to adjust status: she will be denied entry and sent back. You can still go with the CR1 option in her own country.
B. She lies and is admitted. You get married and do AOS.
So indeed, she can always lie, and this is a serious misrepresentation. It might never get caught and you will be fine. But a lie remains a lie and it can always come back and bite her in the butt later on, especially when/if she decides to apply for citizenship when the USCIS will look at all the timeline, and you might be questioned to explain yourself. Or the USCIS might not care at all.
At the end of the day, it is about doing the right thing and a question of ethics, moral and following the law.
You are the one making the decisions.