"Florence Kilborn did exist!"
I now have proof that Florence Kilborn did actually exist. I have located the grave of Florence Kilborn. She is buried in Bellevue, Iowa at the Bellevue Presbyterian Cemetery*, Plot: W-4, Block 12, Old Section. The data reads: (b. around 1856 d. April 18, 1867).
Contrary to what cemetery records show (b. around 1856), if Florence died when she was 14, she would have been born in 1854. This fits with being born by the time that the town (Florence, Nebraska) was named. Also, it now fits as to why Florence was not in the 1870 census along with the rest of her family.
Florence's brother James Mitchell Kilborn is also buried in Bellevue, Iowa at the Bellevue Presbyterian Cemetery*, Plot: W-6, Block 12, Old Section (b. May. 25, 1852 d. Nov., 1896)
Florence's brother James would have been 44 at the time of his death. Assuming that the other children lived to be older, and that Nathaniel and Hannah are not listed as being buried in or near Bellevue, Iowa, there is the possibility that they moved from Bellevue sometime after the 1880 census. Since it is also known that the Kilborns sold the Potter Mill in 1881, there would be nothing preventing them from seeking new territory.
Needless to say that the story is (still) not over so stay tuned.