Hello all, thanks again for all of your replies, I have read them all twice over. To the pp's who have also had this kind of relationship with their mothers, that was some awful stuff to read and I am sorry you have been made to feel so insecure and inadequate. I hope we can all attain some peace of mind and detach from it all. 
I told Dh everything Dm said earlier today and he rolled his eyes, shook his head and said he has always thought she was quite mad and obviously has a lot of ishoos. I knew he felt this way generally.
When I went back to her house to collect dd she immediately started telling me what she gave her to eat, how well they had played together etc and was all smiles. I told her that I thought she'd kind of lost the plot saying the kinds of things she had today and that I couldnt sit and listen to it anymore, that I didnt feel she was truly sorry, that there was no way I could talk to my own dd like that etc.
She told me that I would just have to accept her apology, she didnt know what more she could say, and that I should just drop it.
Well no, I said. I didnt want to actually - at this point we were raising voices - she started shouting that I SHOULD drop it and stop right there considering EVERYTHING SHE'D DONE FOR ME -
Well a bit of back story here; my parents have helped me financially, they have actually been able to give us money towards a deposit for a house (we are renting currently). They also bought me a car some years back, and have been generous to us as a family. I have always been appreciative of this, always said I never know how to thank them. I am aware that I am very fortunate in this respect. Although its said the money is from them both, it is actually Dm that has saved towards the house deposit.
They always told me that by being sensible and not "bringing trouble to their door", in their eyes I am worth it.
So not only did she insult me, she tried to use that money to make me feel guilty. Dh actually said he thought she would do that, but I said no I cant believe she could be that...nasty?
Turns out she is
I said I think its because of the money that you think you can say what you want to me - she said "NO it isnt.....I think deep down youre a BAD little cow" to which I replied no, I think that is what YOU really are, and that my problem is that I have been a complete DOORMAT. She had no response to this, just started tidying up dd's toys.
I calmly left with dd. When walking home I remembered that when I was a lot younger, the moment I started to raise my voice and stand up for myself she used to shout me down and turn everything around to make me feel guilty and inferior. Df did the same sometimes. He listened to everything we said btw, and didnt intervene. I believe he agreed with what I was saying.
Her earlier apology was empty - she couldnt even pretend she meant it face to face. Everytime I said how I couldnt imagine speaking that way to my daughter she would just dismiss it by saying "Im not talking about her, Im not interested in her that way, Im talking about you". She even tried to change how she meant the comment she made about how dd looked in certain dresses, actually tried to tell me Id gotten her wrong. She does that all the time. I saw her tonight as a nasty, mean-minded little woman and Im struggling to deal with that, even though she very much comes across that way in my op
Sorry its all a bit "he said/she said", just had to get all that off my chest. I cant believe she actually called me a bad little cow either, its almost funny how jekyll/hyde the woman is.