How to respond to my name being included in acknowledgements of incorrect/misleading paper whose authors ignored my recommendations?
How acknowledgments work is always a bit of a judgment call, but to me the following principle seems reasonable.  


  You are free to acknowledge anyone in any paper as long as what you acknowledge them for is factually accurate.  If you have any reason to believe that the acknowledged party might take issue with the factual accuracy of what you write in your acknowledgments, it would be honorable to show them a draft of the paper and ask for their blessing on the wording of the acknowledgment.  If this causes them to ask to be omitted from the acknowledgments, then it seems reasonable to honor this request unless you feel that removing this acknowledgment compromises academic integrity.  (For instance, if you are including significant work of the acknowledged party, then just because they don't want you to mention that does not necessarily make it okay to do so.  This creates a sticky wicket that other questions and answers on this site have addressed.)


I believe it follows from the principle that whether acknowledgments are acceptable depends more on what they acknowledge you for than whether they drop your name or not.  For instance, suppose they thank you for "helpful conversations".  If you did in fact speak (or write...) to them about their work, then if they say the conversation was helpful, how can you argue?  

I think that most savvy academics understand that just dropping someone's name in the acknowledgments does not mean that the paper contains their imprimatur.  Nevertheless it is shady to acknowledge someone -- especially someone very famous and eminent -- purely for the cachet that their name may convey to less than savvy readers.  Here is a famous review of Marilyn vos Savant's book on Fermat's Last Theorem that calls out the author along these lines: she acknowledged some very famous mathematicians, who when contacted by her surely did not say anything to indicate that the material in her book was correct (not only does it contain errors, but it contains errors that any practitioner or serious student of mathematics would regard as bizarre). 

In the case at hand: I think the OP would be within her rights to mention that she would rather not be acknowledged in the paper.  Whether she wants to indicate that this is because she still finds the work to be significantly flawed depends on all kinds of social and political factors beyond the scope of this answer.  As to that I would only say: in my opinion, simply very politely asking for your name to be removed from the paper without getting into why is probably a higher percentage strategy than indicating that the work is still problematic. 

Added: Let me add that the principle above is meant to be on the minimalist side.  In practice, if you think that someone is not going to appreciate being acknowledged in your paper for whatever reason, then unless there are academic integrity issues involved in omitting the acknowledgment it seems wise to do so.  Once I acknowledged a friend of mine in a preprint in a way which was factually accurate but nevertheless embarrassing to him: he simply did not want to be associated with something that he viewed as intellectually trivial.  I took his name out of the later drafts of the paper.  This incident has made me think more carefully about how acknowledgments will be received by the acknowledged party.