It's actually not that surprising that Lily Allen was asked to be on Game of Thrones a while back: her brother, Alfie, stars as Theon Greyjoy in the series, so it's pretty much a no-brainer that producers would suggest to his famous, older sister that she take on a role in the series.
However, it's also not that surprising that Allen turned down the role when it was eventually offered to her: according to Allen, the role was that of Theon's sister Asha Greyjoy, particularly in the scene where she's reunited with Theon after years and he doesn't recognize she's his sister...and proceeds to feel her up really intimately.
Allen revealed the tidbit during a Reddit AMA today:
I've been asked to do a Game of Thrones cameo, they asked me if I'd be interested in playing Theon's sister, and I felt uncomfortable because I would have had to go on a horse and he would have touched me up and shit. Once they told me what was entailed, I said no thanks. I would be open to doing a musical cameo like Sigur Ros, though.
So, yeah, no surprise she turned it down. Game of Thrones has enough incest anyway, it doesn't need the added layer of the actress actually being the actor's real-life sister.
Anyway, since we're talking about Lily and Alfie, this is obligatory: