Would you deal with this?

My fiancée's sister overstepped a major boundary the last time we visited with her. She wouldn't put our son down for a minute even to eat when we were at a restaurant and also at one point referred to herself as "mom" when talking to him. Throughout the entire evening she was walking around like he was a fashion accessory and like he was her kid and totally disregarded anything me or my fiancée had to say about anything as his parents. I felt totally disrespected and like an obvious unspoken boundary was crossed. I want to limit being around her. My fiancée doesn't see this as being a huge deal and doesn't see why I was hurt about it as a mother.  
Oh and on a side note, she wants to do everything we do just because we do something. For example she had no interest in settling down and now all of a sudden since we got engaged and had a baby, she gave her boyfriend an ultimatum that she would leave him if he didn't propose to her within 3 months. 
How would you feel if in this situation and what would you do? 
UPDATE:
Also, she's not a good person. She cheated on her ex boyfriends, is materialistic, fake, not someone I would associate with. We would not trust her with him alone, that's something we both can agree about. She didn't want to hold him much or make a big deal about him behind closed doors but when we went out in public in her neighborhood she took over the roll of mom through both her actions and when she called herself "mom" which makes it obvious that's what she was thinking .