Er, you were obviously amused and there was nothing obviously around to be amused at, so she thought you were laughing at her. Isn't that a completely normal reaction?

I dunno about 'normal, but it wouldn't have occurred to me. If I see someone smiling to themself, I assume they've just remembered/thought of something that makes them happy and/or amused.

I certainly hope not! If it were me I'm sure I'd include myself in the assessment that there was nothing obviously amusing around (after a quick sanity check for e.g. underpants worn on head), and conclude that the person must have just happened to think of something funny. Perhaps if everybody I met on a trip through the town centre burst out laughing when I walked past, I might start to think it was something about me, but from just one isolated incident? I think you'd have to be fairly paranoid to automatically assume that someone who hadn't even given any clear indication of noticing you was "obviously" laughing at you, particularly if you were so convinced that you felt free to stop and harangue them about it.

Well, some people are fairly paranoid. Although I think I'd be more paranoid that people would think I was mad for stopping and haranguing them in the street than that they were laughing at me in the first place.
Anyone stopping to ask me why I'm grinning in the street deserves all they get. ;-)

Well, I know I do that even when peopel don't laugh, but then I'm paranoid from September until April. Maybe she was too. She needs a lightbox.