It could be that the script and character requirements didn't align with her availability or interests. Sometimes, these decisions are based on a variety of factors beyond our knowledge.
Yes, she was in it. In the new Christmas Story, Melinda Dillon's performance was quite notable. She played her part with grace and skill, helping to create the warm and festive atmosphere that is characteristic of Christmas stories. Her acting was one of the elements that made the new version of the story engaging and enjoyable for the audience.