Family drama and how to deal with it

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?