"..Margaret KELLY was alive in Sydney in 1909 at daughter Catherine's marriage..."
Can you please list all the information on the marriage certificate for Catherine DUNNE m. 1909.
Self reporting is usually more reliable than information given by someone else, but if you do not have a birth certificate with mother Margaret KELLY as the informant, can you say how John Edward DUNNE gives Margaret's age and birthplace on the birth certificates that you have.
This might be your Margaret?
QLD BDM death (7 Feb 1911)
1909 / B13693 DUNNE Margaret Ann parents KELLY / -
Toowong Cemetery burial
Margaret Ann DUNNE bur. 8 Aug 1911
Portion 7A Section 91 Grave No. 11
The Telegraph 7 Feb 1911
http://trove.nla.gov.au/ndp/del/article/175851449?
...death of Margaret Anne DUNNE at her residence 582 Brunswick St New Farm......62 years old.........living with daughter.
Birth date here ~ 1849 would fit with your Margaret 27 years old at 1878.