I did on the ride home try to explain to my son that when her son is upset that it is not his fault and to try to not take it personally and go about his business. My son does have a hard time expressing his feelings and standing up for himself then he hides and sulks. I just feel sometimes like when the 4 of us are together that I have a thirty some year old woman with the emotions of a 6 year old, a 10 year old with the social skills of a 2 year old, another 10 year old sulking like he is 5 and me wanting to send all of them to their rooms without dinner.
That cracked me up, but I think it is about right. Your son isn't old enough to really do a good job of coping with her son, although you can help him.
I think the only thing you can really do here is use your boundary pretty much as you did. Make sure you understand your boundary and are comfortable with it.
You mention something else, and this might be an opening for your next step:
She openly admits that her son is difficult but that she has no idea what to do about it and that she is so tiered of telling him "no" and correcting him that if her son wants to hide in his room and be rude she is going to let him.
Perhaps another time like this will give you an opening to give her some guidance?
We can help you use some of the communication tools that are validating like S.E.T. to work on a conversation like that.
She might be more open to suggestions that she could use than she is to you disciplining her son.