Do you have a problem with her being all huggy-feely with her friend? Once I'm pretty comfortable with a woman I know, and if she's similarly inclined, I can be very huggy-feely with my platonic friends. No romantic intentions whatsoever.
As far as the ol' Dee Tee Are (Define The Relationship) terminology, this is how ol' Shour rolls:
Talking/Hanging Out = getting to know each other, possible romantic inclinations, no affectionate physical contact other than salutory hugs. Often not alone with prospective partner, usually amongst friends.
Dating = primarily alone with respective partner. Romantic inclinations on both sides, early phase may not have additional physical affection, but can advance to handholding, kissing, and beyond.
Courtship/Seeing Each Other = synonymous with dating, but is exclusive. Usually involves the girlfriend or boyfriend label.
Engagement = official, mutual agreement on the intent to wed
Clear as mud for ya?
Of course, I say this is how I roll, but I've had very few relationships compared to most men my age, and the one big relationship I had never made it to the engagement phase simply because I was still paying for the diamond when she broke it off. >_< (That's right, I've a ring and half of a rock still.) But for me, those parameters are pretty clear and allow for easy DTRing.
