Wow! She either has a great memory or lots of time to study the passage. 
Since the purpose of dictation is correct spelling (with the added benefits of reinforcing good grammar, punctuation, capitalization, etc.), I don’t see any harm in her memorizing the passages if she wants to. As long as she is careful to study the passage and reproduce it accurately, I wouldn’t think it would matter whether she is writing from memory or you are feeding her the phrases.
If, however, she begins to spend most of her attention and concentration on memorizing rather than spelling correctly, you may need to direct her efforts back to the main purpose of the exercise.
