Mother in law gave my fiance a ultimatum...her or me?

My soon to be MIL has been a major problem in our relationship. We have been together for six years and we each have a son they are the same age, andthey are both with us half the time. She complains that I am so mean to her grandson, becasue we have rules that we follow at our house(she does not like the strict rules, which is fine, but that is how my fiance and I decided to raise our children) I have always treated him and my son the same, I go out of my way to show her that I am doing special things for her grandson. But she tells my husband I am a b****, and I am so mean to her. Well he finallly saw his mom in brutal action this week with her acusations of me being mean to her and his son...when he sat there throughout the whole thing, and was freaked out at her behavior. He couldn't beleive his mom was acting so crazy, when I see this all the time. So he wrote her a email letting her know that the way she is acting is unnacceptable, and she cannot act this way. Well she sent a nice little email stating all kinds of hateful things about me and how I am this horrible person and parent...even as far as calling my mother a slut. She told him that as long as I am around she will not be, and that she will go through his ex-wife to see her grandson. She also stated that my son is a s*** head and he is all screwed up compared to her grandson, and she can't stand to be around him. To her its all this big competition between the 2 boys, but they are completely different kids. So I sent her a nice email back touching on each point she made about me and my family. I didn't call her names, I wasn't rude...I was just blunt and to the point about each accusation she made towards me. I also let her know that I want her and my fiance to have a relationship, but that she is not welcome in our home if she continues this behavior. So she won't respond to me, but sent my fiance this pity email about how he has broken her heart into peices and she is trying to live her life to the fullest because she could die tomorrow(in which she has no ailments), and he doesn't love her anymore, but she loves and needs him. He is so stressed, and she keeps sending him email after email being more hateful...and I think it is because she is not getting her way this time. She is also going around telling people I am abusive (we don't our kids)...she is talking mine and my family's name down. What do I do????