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Probably it would have been better to address the situation of her bringing 5 kids as soon as she walked in the door... After this situation it seems like you'll need to think about your policies or procedures/guidelines and make them clear to potential clients before they even schedule. And have it in writing along with what's in your current contracts.
In the type work I've done, not photography related but working w/kids and families, our program gave parents info. when they enrolled; when needed I could refer back to it (remember that handbook/brochure? it says this that or the other, so we'll need to do this that or whatever...). I know a photographer in my area that does something similar to John, after a certain amount of time if the child/children aren't able to continue on with the session then it gets rescheduled.
I agree with others that it might be best at this point to cut your losses and be done with this family. Since she has the pictures already I doubt there's any getting them back. Up to you if you want to make any refund or not; seems like it would be appropriate to expect at least a payment for your time but since the photos did not turn out well I don't know if it'd be worth pursuing keeping the entire payment or if a partial refund would defuse the situation.
Do screen captures on all that usage - and then ignore her.
Thanks for all the input guys, I appreciate it.
I haven't heard from her today at all, which I thought may have been a good sign, however a friend of mine phoned me to let me know that she had approached him this morning asking if he was able to edit out my watermark from the proofs that I had sent over to her so that she could get them printed. My assumption is that she didn't know that we are friends and that it would get back to me, because she told him that I had sent her the proofs before Christmas (I didn't) and that she has not been able to get hold of me since in order to let me know what she wants printed, and so she is left with a selection of unusable proofs that she wants printing. He told her he wasn't able to and then contacted me. He wasn't aware that there had been an issue and assumed she was just trying to pull a fast one, which is now what I'm starting to think to, however I'm still sort of over a barrel because I can't prove that she has done this and if she still demands a refund or a reshoot I guess I'm sort of obligated, meaning I will either lose out on the money or end up working a load more hours for free. I'm not so bothered about the money, tbh. To get this over with I'd happily give it back, but I feel reluctant knowing that someone is obviously trying to do me over on this one, and doesn't have a genuine complaint.