As she said she wasn't ready for a relationship, I would go with that. You can still be friends but maybe nothing more, at least for the present.
Her hugging someone may not have been anything sexual or romantic. She also might have been drinking and (as we know) we often do things when we're under the influence of alcohol that we might not do when we're sober.
As far as what other people say, sometimes what we hear isn't always accurate.
It sounds like she likes you but maybe doesn't want to make the relationship more than that.
It's up to you to decide whether you want to move on or not. If you're only interested in her in the hopes that it might develop into something more and you'll get to have sex with her, you need to ask yourself if you're OK with just having her as a friend.Free from:
~~ Happy Day. ~~