I have to say, I find it hard to condemn Lily for her actions. Personally, I would have forgiven Severus, but I can totally understand why she didn't. Suppose you were a black teenager, who'd suffered racial abuse ever since you started school, and then your friend started hanging out with future ku klux klan members and called you a very offensive racist name in front of the entire student body! I agree with you that principles should be mitigated with human understanding, but I can see why she would have found that hard to forgive.
In this story (not necessarily in canon) she stops talking to him because she's frightened of what her feelings for him might lead her to do. She's worried that he will lead her to betray her principles and maybe even become a Death Eater. I don't agree with her there either, but it must be quite frightening to be in love with someone as angry as Severus Snape!
Anyway, sorry, this is becoming an essay. Thank you so much for reading and commenting!