This is an extremely difficult situation. You and your husband have a great challenge in front of you.
I wonder...does your stepson behave the same way toward his mother that he behaves toward you? If his mother really is as bad as you say, and the son is following in her footsteps, their relationship must be volatile (to say the least).
I can't really offer any advice, since I have never had to deal with a situation like that. Intuitively, I think you should be the best parents you can when you spend time with the children (to give them a dose of healthy reality), and I think you should let them know that you are always there to talk to when they can't deal with, or don't understand, their mother. It seems to me that she is playing pretty dangerous mind games with these kids, and sooner or later the effects will be felt. All you can do is the best you can do, and reminding them that you love them and are there for them is never a bad thing.
I also think it might not be a bad thing for you to enter therapy as a couple to try to develop a strategy for dealing with these problems, and to invite the boy along to have a non-threatening environment in which to discuss his mother. Somehow, I think the boy needs to know that you believe his mother is doing things wrong, but that is so difficult to say.
I wish you all the best.
Joyce