jealous daughter UPDATE!

Ch
What do you do when you are raising your husbands 8 year ol daughter. Her mother left her when she was about a year and a half old. She has been rubbing her self off since she was about a year and a half old. She's been lying compulsively cause arguments between you and your husband. Admits that she is jealous of you. I also have a 5 year old that she has been trying to do sexual things to. Came up with a "surprise game? To where that it requires pulling each other pants down. My 5 year old claims that the 8 year old stuck her finger up her butt and it hurt. Then she teachers her a wake me up game to which it requires the 5 year old smacking the 8 year old on the butt to wake her up. She's been doing what her aunt calls cricket legs in which she pulls her pants and panties up in her vagina and woks her legs til she gets off. She smiles at me when I tell her she needs time out. And it takes her dad telling her to do it before she will. You can't whip her because she likes it! She seriously wants spanked. She also thinks that if she eats punished then the 5 year old should be punished and if the 5 year old is punished then she should be punished because it ain't fair. I'm pregnant with twins at 14 weeks and I've been so stressed I been having contractions.  HELP PLEASE 
Update!!
My mother In law told me that she noticed the 8 year old first doing cricket legs after her mother had left with her and my husband had to go and pick her and the baby up from a party. The mother had tendencies of leaving a lot and taking the child and doing things such as this. But my mother in law says that's when the cricket legs started exactly, was after her mother took her with her to a party. My now husband had to leave work and go and get her and the child and of course two days later mom left again this time my husband didn't allow her to take the child. Files for divorce which in the separation she was granted visitation. The party could explain why that she says that music makes her want to touch herself, that may be something she remembers.