I could have written your post 18 years ago! Like you, very poor relationship with my SM as I was growing up. She was wicked and made me a very unhappy teenager, so much that I begged my parents to send me abroad.
As an adult, the relationship became mainly polite, but as such, was bearable. Living abroad, so only seeing my dad and her once or twice a year which was bearable.
However, I felt totally differently than you when I became pregnant (at age 27). From the moment I was pregnant, I considered my baby a person of her own, not an extension of me, and that she had a right to a relationship with who she will grow up to be her grand father's partner, and therefore through the eyes of a child, her grand-mother.
I made this clear when they came to visit, and it was the best decision I could have made because she's been an amazing grand-mother. She's never fully apologised for her behaviour when I was growing up, but she has admitted that looking back, she should have acted differently. She said that she genuinely cared for me and wanted the best, and that's why she was so strict. I am not sure that's totally true, but I have found in me to move on and focus on the present.
My children don't have a close relationship with her (distance being the main issue) but they do consider her their grand-mother. I will never forget or forgive, but I have been able to let the past be the past and I actually enjoy her company now.
If you have concerns over her influence on your child, then fair enough, but don't punish her or your child because of what happened in the past. Like me, you might discover that she makes a much much better grand-mother than step-mother.