The key words are highlighted in bold. It all depends on how far the lady was into her pregnancy.
If she was 120 days or more (at 120 days the soul is breathed into the foetus), then Islamically the baby should be washed and shrouded, the funeral prayer offered for her, then she should be buried.
If she was less than 120 days, then Islamically the foetus should be shrouded and buried, but the funeral prayer is not offered. Washing depends on how far less than 120 days she was.
See these links:
It doesn't say anywhere in any Islamic text that you cannot bury your still born child Islamically, and nothing should stop them from performing the Islamic funeral arrangements as outlined above.