Oh dear, it is pretty scary indeed... Makes me wonder whether she cares/feels for/loves her son's child :s It seems you did all you could and you have no reason to feel guilty about the distance and so on.

Your child will be better off, at this stage at any rate, without this lady in her life. Same for you, as i imagine you could do without the worry & hassle. Wish you and your husband strength and take good care of yourselves.