That's touchy. Obviously, if it were your own daughter, you (correctly) would never have allowed this to continue so long. However, being that she is your husband's daughter, and you didn't say how long you have been "on the scene", then you need to keep your corrections few and far between, if at all. Definitely not anything disciplinary regarding the speech habit. If you absolutely must do 'SOMETHING', you might say, sweetly, "you mean library?" (not with a "teaching" tone, but just a sweet looking for what she means tone), here and there. Don't say anything more than that. And don't ask that but once every few days. Even if she does her "cute" words 75 times a day with different words.
What you might do, is talk to your husband instead. Often, when there is a broken family, the kids are coddled to some degree to "make up for" the difficulties of the broken family. Perhaps subconsciously. Anyway, you might talk to your hubby about how it will benefit your SD to pronounce words (that she is obviously capable of pronouncing) correctly; rather than how mispronouncing them for attention is a detriment to her. She should be proud of saying/knowing words that are "beyond" her peer groups typical knowledge/usage.
Generally speaking, in your interaction with her, I would simply ignore her habit. COMPLETELY. Ignore it. Don't correct her. Don't laugh at her. Don't smile like it's cute. Don't grimace because it grates on your nerves. Just pretend she said it correctly and move on. The more attention she gets from it, the longer it will continue.
I am totally with you about mispronouncing words not being cute. When they are two, it is cute sometimes for some things for a short time. I NEVER repeated an incorrect pronunciation to my kids like I know others sometimes do. I just don't believe in that. I also didn't use "babytalk" with my kids. Sure I used the singsong voice when they were babies.. but I still called a blanket a blanket and a bottle a bottle (not a banky or a baba)..
But, because it is a step-child/parent situation, it makes everything different as to how YOU handle it.