Graham, 61, and Gregory Lee Roser, 63, have pleaded not guilty to murder after Mr Saunders, 54, died while working on a property north of Brisbane in November 2017.
Graham is accused of asking Roser and another man, Peter Koenig, to kill Mr Saunders and make it look like an accident to claim her ex-partner's $750,000 life insurance policy.
The jury was on Wednesday shown police video of Mr Saunders' legs protruding from the chipper at the Goomboorian property near Gympie after he had been clearing trees with Roser and Koenig.
Friend Kim Simpson told Brisbane Supreme Court Graham had split with Mr Saunders but moved back into his Nambour home, living in separate bedrooms.
She said Graham had called her "crying hysterically", telling her "one of the guys had fallen into the woodchipper".
A "week or two" later Graham asked Ms Simpson to write a letter to her lawyer after earlier mentioning that Mr Saunders "had left everything to her", the court heard.
"She asked me if I could write a letter to her lawyer stating that her and Bruce were in a relationship at the time of his death ... because of the insurance," Ms Simpson told the jury.
Asked if she wrote the letter, Ms Simpson said: "No, because it wasn't true."
Graham has been accused of being in a "love quadrangle" with Roser, Koenig and Mr Saunders, plotting the latter's murder for months.
Graham's friend Leonie Whyte said she was told by Koenig and Roser that Mr Saunders' death was an accident.
"They did say that Bruce was messing around with something at the machinery and he wasn't being very careful that day," she told the court.
However, a neighbour said Graham told him Mr Saunders overbalanced reaching for his mobile phone and fell into the chipper.
"She said ... they only found a bit of clothing ... and not much of anything else," Stanley Cook told the jury.
Graham told another friend in text exchanges shown in court that Mr Saunders had been messaging her before his phone fell into the woodchipper and he may have died trying to retrieve it.
"Can't talk I'm devastated. Bruce has passed away. He was texting me when his phone must have drop into the wood mulcher and he must of went to grab," Graham's text to a friend said.
"Police have said it is tragic accident...Been crying all night. I'm devo."
Another neighbour said Koenig frequently stayed at the Nambour residence and gave a "detailed account" of the death.
Anthony Eyndhoven said Koenig told him he last saw Mr Saunders feeding a branch into the chipper but when his back was turned he heard the machine "making a different sound".
Koenig said he shut down the chipper but did not see Mr Saunders until he "walked around the back and saw legs coming out".
Mr Eyndhoven said Koenig also told him the chipper's owner "would have a lot to answer for" because the safety switch was disconnected.
Other neighbours told the court that there were regular parties at the Nambour residence after Mr Saunders' death.
They said people were "coming and going" including Graham in her deceased ex-partner's car and "things being removed from the house".
"It (parties) started after he died and continued on for a number of weeks ... definitely up to Christmas (2017)," neighbour Colleen Paice said.
Ten days after Mr Saunders' funeral, Graham texted a friend saying: "We are going to the Yandina Hotel…GREAT BAND….WOOHOO."
The trial before Justice Martin Burns continues.
