Any tactful way to end a friendship with a PSYCHO MOM?

Tell her off, tell her exactly what she said & explain to her that she hurt your feelings. Your son does not need friends who make fun of him, & her son is too young to think these things up on his own. I am so sorry that you have to deal with this. But you sound like a great mom and you realize that your son is a blessing! He sounds like an awesome kid & you should be very proud!