McCain (R, Ariz.) was the frontrunner in the Republican presidential contest when the Times ran the story.
In an exclusive interview Monday, Vicki Iseman, asked point-blank by co-anchor Maggie Rodriguez if she'd had the affair, replied, "No, I did not."
Later, she emphasized, "Any assertions that there was anything inappropriate, ethically or professionally or personally are just not true."
The Times story claimed that, back in 1999, while McCain was running for the presidency, some of his top advisers were "convinced that his relationship with Iseman had become romantic."
If that were true, the Times said, it would have been a conflict of interest for McCain, then the chairman of the Senate Committee on Commerce, Science and Transportation, since Iseman's clients often had business before the panel, the article said.
The McCain campaign called the Times story a "hit-and-run smear campaign," and took to the airwaves to slam their reporting.
"It was inappropriate and unprofessional behavior by the New York Times," campaign CEO Rick Davis said in late February 2008.
"We are very disappointed in The New York Times piece. It's not true," McCain himself said at the same time.
Last December, Iseman filed a $27 million defamation lawsuit against the newspaper for suggesting she and McCain had been romantically involved.
Now, Iseman has dropped the lawsuit and settled with the Times.
Although the Times claims no money was paid out and an apology was never issued, the paper wrote in its "Note to Readers" section that, "The article did not state, and the Times did not intend to conclude, that Ms. Iseman had engaged in a romantic affair with Senator McCain or an unethical relationship on behalf of her clients in breach of the public trust."
In the Early Show interview, Iseman said the Times story "all went back to one singular person, a political operative who had left the senator's campaign under acrimonious circumstances. ...All roads lead back to him."
Rodriguez pointed out that Iseman meant John Weaver, the only source named in the Times piece.
Iseman speculated that a bruised ego on Weaver's part, after she appeared to criticze a McCain speech Weaver may have written, might have been behind Weaver's dissatisfaction with her.
She also described what the Times put her and those close to her through in doing the story, and criticized the way the story was presented. She said the Times mwst have been so invested in proving the story true that it got "out of control" and the paper "couldn't walk away."