So my theory is that Melanie and Boone were sent to Wallace University undercover to gain info and prepare before they started their revenge, so Melanie joined Kappa. After a while, she started liking Kappa and even became president. Boone was really upset with her for abandoning their plan, so he replaced her spray tan with acid to teach her a lesson and force her back on track. That's why the Red Devil is always wearing the suit, even around her brother, because Melanie can't stand to see her acid-scarred skin.
I also think that they wouldn't have even had that storyline on the show if it wasn't important in some way, as it didn't really effect the episode. Melanie is also one of the only characters who hasn't been seen since the first episode so she's been forgotten a bit, and since it would be very surprising for her to be the devil, the writers might like that.
Anyway, let me know if you agree/disagree or have any points to make about my theory :)