No, an engagement ring does not have to be a diamond but why wouldn't you want a diamond. I can understand that she is not like the typical girl in wanting all the shiny things in life but you have to consider the down fall of not having a diamond. A sapphire, such as a Ruby will not have the long lasting beauty as a diamond. They scuff, chip, crack and are easily damaged losing beauty, value and sparkle. Yes, diamond also crack and chip but they are far more durable than a sapphire. I suggest buying a semi-mount with two rubies on either side of the diamond, which is typical nowadays. Simon G. made a semi-mount for this type of mounting.
Getting a Ruby as a center stone is much like giving her an sterling silver engagement ring. The metal is much to soft to ensure tight prongs to hold a precious stone such as a diamond. That is why they do not make silver engagement rings, only silver PREVIEW rings for you to view prior to making a custom order. Hopes this helps but I wouldn't stray from a diamond center stone unless you want to spend more and more money out of pocket to replace a damaged sapphire year in and year out, especially if she is going to wear it for the rest of her life. THE REST OF HER LIFE! don't forget that part.
Theres a reason that diamonds, gold, platinum are used to make engagement rings. They will last you the longest with a reasonable amount of service and maintenance.