I don't profess to know a lot about cats, but my guess is that she probably does feel her territory is being threatened.

I like to watch Animal Planet and they have this show (the name of it escapes me) broadcast in Britian, where they bring on these animal behaviorists to help solve problems with pets. There was a cat on there who would urinate all over everything. The animal behaviorist said that it was because this cat wasn't feeling secure in her 'territory'. They solved it by taking a cloth and rubbing it all over the cat to get her smell on it, then rubbing it in all the areas where this cat would normally spray. They did this daily for a couple weeks and the problem was solved.

I can't say I know it would work for your cat, and I do realize her problem is a bit different. I'm also no animal behaviorist. But I thought this was interesting, and it might be worth a try. It's not hard to do after all! Maybe you could rub a cloth on her fur, and then rub it, with her smell on it, all around the area where she saw the other cat, all around any windows or doors, and even on your legs where she can smell it. That way, maybe it will help her feel secure in knowing you and your home belong to her.

?

Just some thoughts,
Angela