This story sounds so interesting!
Every week on Saturday night, my family makes Havdalah. Specified fluids other
than wine can be used for this ceremony.

The custom is that after the appropriate prayers are recited, my husband takes
the Havdalah candle, pours some wine over it and also immediately dips it into
the wine to extinguish the flames.

We then follow with the custom of dipping our pinky fingers into that remaining
wine and putting some on our eyelids which is said to strengthen the eyesight.
(Some people also have the custom to put that wine in other places - e.g. back
of neck, pockets)

So reading your post, it seems that there is truth in your friend's description,
and I imagine it's certainly possible that the schnapps caught on fire every
week, but that part sounds a bit legendary to me, knowing in person how the
actual havdalah ceremony is carried out.

Hope this is helpful.
Fraida Cohen
New York