C.H.
I always think that facts come first, then assumptions. Don't get in the habit of defending your children first and not being interested in the facts. GEt off the attack wheel and be smart about it.
Talk to your son. The advice you've been given below is good on that subject.
Then contact one of the other families to ASK what they know. Don't be all defensive and slander this woman before you ask as if you want to know if your child did anything more unusual than the other kids. Be open. This will serve you and your child better. If you slander her, they will assume you will slander them if they don't answer the way you want them to.
Next, did this woman (whom you have slandered as being mentally unstable now) attempt to tell you about problems she witnessed that day? Did you brush it off? That would have been frustrating for her. What did she see to tell her that your son lit something on fire and vandalized her property?
Many boys have times of being mean to girls or vandelizing property. My own son had a few years of playing dangerously with fire out of my sight. I was worried to death it would continue. Thankfully, it didn't. So, before defending, find out what happened in case your boy does need more guidance.
That said, if you decide to get with her, ASK questions first with an open mind. Tell her that you've heard that she's said that your son caused problems and you are sincerely interested in what happened, what she saw, or what the kids said. Tell her you are concerned if your boy did something unusual for boys that age. So on and so forth. If she says that she's not aware of anything, tell her that _________ said that she said this and that (direct quotes, not summaries or exaggerations). Ask if she can think of any reason that they would say that if she didn't. Then, just go from there.
The key is: Don't jump someone before you get the facts and all the information you can. Take the attitude that "Where there is smoke, there may be fire" Consider why in the world she would say that if she has no basis at all. If she is mentally unstable as you say, then perhaps you shouldn't let her be in charge of your kids and you should get to know someone better. Mentally unstable? That's pretty harsh. Overly dramatic? Exaggerates? Have your other friends used those words? If not, be very careful of your description or they will wonder why you are mercilously maligning her.
Just another perspective. I hope it helps. If she is found to be malicious, then she will at least be made very uncomfortable while trying to explain something to someone who is interested in the details and the rationale of it all and then you can be guided by her answers. Sounds like you want her to stay in your circle of friends so this advice I think will serve you best.