It is the latest twist in a scandal that has gripped Taiwan since late last year.
The scandal broke when a tabloid magazine distributed video CDs showing the 40-minute romp.
The woman in the video, former Taipei city councillor Chu Mei-feng, had planned to sue her former lover Tsai Jen-chien for his alleged invasion of privacy.
But on Wednesday she told a court she wanted to cut all ties with him.
"I no longer want to hear his name, and I don't want to see him ever again," ETTV quoted her as saying.
Pirated videos
A lawyer representing Ms Chu said she had told him a day earlier that she did not want to pursue the case.
"After she returned from a trip abroad, she told me to drop the lawsuit," lawyer Chong Yung-sheng told reporters. "She had never mentioned this to me before."
Ms Chu had accused Mr Tsai, former mayor of the northern city of Hsinchu, of helping her former close female friend to set up pinhole cameras in Ms Chu's apartment, car and office last year.
Ms Kuo allegedly sold the video to the gossip magazine Scoop to earn money to pay for her daughter's education abroad.
The video discs were seized by the authorities, but pirated copies circulated widely, reportedly going on sale in Malaysia, Singapore and China.
Mr Tsai said he was "surprised, perplexed, and calm," at news of the dropped lawsuit, the United Daily News reported.