I don't know if I would say to drop the friendship but I will admit that their issues with other races is a bit frustrating.
You should look at things from her point of view though. She has a 14 year old daughter. This is the time the daughter is starting to get very interested in boys, and not just hand holding. This is the time when sex really becomes an issue. Girls are even starting at a younger age now, my cousin is in 6th grade and he had a girl in his class ask if he wanted her to perform fellatio on him. The mother may just be trying to protect her daughter from becoming one of those girls.
Her daughter may have already begun to become sexually active and the mother found out and is on her guard. It sounds though, that she is just trying to protect her daughter and you can't fault her for that.
The fact though that the girl has had 4 step fathers isn't very reassuring especially since one of them just got out of jail. I think you should try and keep your family away from that house while the ex con is still there.
Don't be discouraged by her just because she doesn't want her teenage daughter to spend time with boys. This is a perfectly understandable thing given the time we live in now.