I applaud your husband for sticking up for you and the children and the rest of the family, and understand trying to keep the "family" together for the sake of your deceased step-mother. But....We've been putting up with her BS for ages and we were all sick of it but tried for the sake of my step-mom to keep the family together after she died; it was one of the last things she asked of us.
Given my own experience, I stayed on good terms with my step brother and two step sisters after my step father's passing. Until my step brother started being a total jerk and fighting with my mother on belongings step bro felt he was entitled to (my step father was a simple man and left everything he owned ((which wasn't much but a few personal items)) to my mother). For a while I chalked it up to his grief, but then he started being a total jerk to me and trashing my mother. It took a few years, but I slowly eeked him out of my life. He only lives about five miles away and I haven't seen or spoken to him in years.
I'm FB friends with both former step sisters now, but don't have a relationship with them outside of that. And there is no way I'd get drawn into any of their drama.
Short story long, I basically said all that to say, there's really no reason to hold onto the relationship with your toxic, former step sister anymore. As cold hearted as it is, she's not really "family" anymore so don't deal with this drama. Cut ties and move on.
Easier said than done, I understand, but start backing away little by little. Eventually, both of you will move on to greener pastures.