Finally made the dreaded call to USCIS to hear that it is in background check. In my wife's call they haven't said anything, gave her a vague answer like it could be in background check or in the local office or some other reason. They also said it is not an uncommon delay and could take upto an year.
When I mentioned how my friend who filed in Jan 07 is already a citizen, she gave me the usual each case is different answer. She added that his file must have been misplaced in front and that was how he must have got it.
All in all, Memphis office sucks.