She sounds like a total cow. You must keep your son away from anyone who treats him badly otherwise he will grow up think that this is ok.

I would not encourage this friendship at all. Don't have this child over to your place anymore just tell your son it is fine to play with him at school but you are not doing any outside school activities. It is a real shame that this child has to suffer for his mother's behaviour.

Next school year I would ask that they be in different classes if possible. Encourage your son to invite other kids over to your house to play so he can make some other friends. Hope it works out ok for everyone