Ok, I have no experience with housing rules but I have spent 5 minutes in Google.
Some pertinent facts I've stolen from the Internet:
1. A 'non-assured tenancy' is also known as a 'common law' tenancy. The key feature is that it is not covered by the Housing Acts and is effectively a simple contract between landlord and tenant.
2. Any residential tenancy where the rent equates to an annual rate in excess of £25,000 p.a. (set in 1990 and not increased since at this time of writing - November 2008) is excluded from the Housing Acts 1988 and 1996 (AT or AST) rules and therefore must be a common law tenancy.
I suspect that it is likely that 5 rooms being rented will exceed £25,000 pa.
3. The implications here for common law tenancies are: (1) a different tenancy agreement from the usual AST will be required, and (2) any deposit taken is not subject to the requirements of the Deposit Protection Scheme under the Housing Act 2004.
So, seems she is right and isn't making it up, as it doesn't seem like your deposit has to go in the scheme.
I would check your tenancy agreement and the terms of the deposit. Ask for proof of matress damage.