Hi Barbara,
we do not appear to have a volunteer in Kilkenny and I can only offer some info, I am not attached to Kilkenny and know little about it, however your query caught my attention re Grangegorman as it was better know as a mental hospital or psychiatric hospital, however you are correct as it appears to have been used as a penitentiary but I see also it was a fever hospital in 1850, see http://ggda.ie/grangegorman/a-brief-history (it has recently reopened after redevelopment as a campus for Dublin Institute of Technology) It is possible she was referred there as she was ill.
You could try Kilkenny Library Local studies for queries about gaols there, I have used the library service in other counties by email and found them very helpful. http://www.kilkennylibrary.ie/eng/Our_Services/Local_Studies/
I searched on Find My Past for Margaret Cullen and found a Margaret Cullen on the Laois (Queens County then) prison register in 1850, it is just a list and no exact date, this would be about 30 miles or less from Kilkenny, there are a lot of Post 1850 hits for a Margaret Cullen in Thomastown, Kilkenny, she appears to have been a single lady of means, she applied for a license to sell sell alcohol at one point. This is in the 1850s.
I would think most major towns would have had a proper prison back than so surprised if there were none in Kilkenny (a lovely place by the way). I searched Griffiths Valuation and found that there is a Gaol Street and a New Gaol Street there prior to 1850, date printed 1849 so there must be a gaol there then, see http://www.askaboutireland.ie/griffith-valuation/index.xml?action=nameS…
Hope you find somethin useful there, ask more if you think we can assist,
Good Hunting,
Pat