S.M.
When it is a matter of protecting your kids and fostering their relationships with one another and their father... I don't see a choice. I know it is hard, but you have to do wha tis best for your kids even if it is hard on you. No way would I let anyone, let alone a grandmother (step-grandmother) treat my kids badly.
To be fair to her, you have to have to be very clear and consistent with how you respond to her. If you ignore her behavior, she will take that as a sign it is acceptable. Be calm but firm as you would be with a child - and impose consequences. IF you talk to my kids this way, then you will be asked to leave. Etc.
Your husband is a grown man. Show him empathy for his feelings, but he is responsible for his own actions. He can speak for himself and make his own decisions. If she misbehaves, you need to back him up. But you can't change either of them and you can't act on their behalfs.
You are putting too much pressure on yourself. You know right from wrong. Respond honestly and calmly to situations, and don't get pulled into drama. Say your peace and walk away. Your one allegience is to the kids, (all of them), so focus on that and don't let other behave like they are the kids who need your attention.