I could be way off here, but when I read your post, it sounds to me like you feel like you "have" to be friends with this woman. Just because she lives near you and is friends with your sister does not mean you have to be buddy-buddy with her. Do you really enjoy the friendship, or are you more or less putting up with it?
Unless there is more to the story, I don't think she is after your husband. She sounds to me like she has low self-esteem and might be a little sad, and feels the need to boast or one-up you.
If it were me, I would just let the friendship cool. I wouldn't totally cut off ties with her or make a big deal about it, just put some distance between you. It sounds like your sister would be caught in the middle if you really got into it with this woman.
If she brings up your husband again, bring up HER husband! "How is Joe these days?". ;-)