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is this girl just being friendly towards me or is she actually interested?
K, i think i know the kind of girl you're talking about. I used to be confused too about girls that acted this way. And yes "Heather" is interested in you! I'm sure she is not someone that wants to be just friends with you. It looks to you like she acts counterintuitive, but it's not. She is pissed.
Firstly, when she asked you about Sara you said you were just friends with her. So what is Heather going to think? "Well, he is flirty with me as well, so he probably sees me as a friend too..." You're surprised that they think of you as a nice guy? Really?
Now, how i would recommended you'd approach this.
What she looks for is verbal, that's why she responded negatively to you hugging her. Next time you see her you need to tell her that you like her. She is confused probably more than you, so it's important that you'd be blunt about your intentions. You can then go for a kiss or continue any physical escalation from the point that you have stopped.