Hm...I was wondering about the possibility of chronic kidney disease, because my Celia sometimes had the same issue - the fur around her head and chest would be wet and smell like pee. She had CKD, which eventually causes uremia - the kidneys can't excrete toxins properly anymore, so they build up in the body and cause a pee smell and/or they may have uremic breath. The vet thought that she was maybe grooming herself and spreading the smell from her breath.
But it wasn't possible that her fur would be *so* wet from grooming. Since she was managing to get her fur all wet, even all the way down her chest, when she was drinking water, I think that she probably always had a pee smell, but it just wasn't really noticeable unless her fur was wet. And it was amazingly hard to dry off this fur. It got matted and almost sticky.
If you think Lily's only about 8, that's quite young for CKD, although some kitties do develop it earlier after an acute kidney problem.
When did she last have a urinalysis done?
How is her appetite?