First a little background. I have an 8 year old SD who is a terror. She is the most disrespectful child I have ever met. If he dad is joking with her or he gets on her nerves playing around she screams "I hate you" a term she throws around lightly. As well as "shut up" and "stupid". When we got together she slept in the bed with him. And then with us. And then ending with me on the couch! She would run on him and have him lay his head in her lap as if she was his girlfriend. She would sit in his lap and yell cuddle with me! (Shes 4'10" and 130lbs and developed like a grown woman) she lays with her leg straddling him and is just overly affectionate in ways I see inappropriate. And I come from a very affectionate family. He says it's cause she's so big I think it looks weird. He would NEVER abuse her in any way. But mentally and emotionally him and her mother have completely screwed this kid up. She manipulates him and has admitted it. Making him feel like a bad father and crying saying he's broke her heart and then locking herself in her room until he cries and begs to her and then she smiles and laughs cause she got what she wanted. Making him feel foolish and bad about himself. But he always gives in to her. We recently found out he had a son about 6 months ago from a 1 night stand when we were broken up. He's now 11 months old and she is horrible to him. He kicks his walker. Screams at my husband to put the baby down now and play with her and shoved him to put the baby down. She sneaks and wakes the baby up if my husband is giving me any attention because she knows I'll go get the baby and she gets daddy to herself. There is so much more and very disturbing things to this aspect. She constantly puts me and my husband to fight one another. She has done things such as watched me get ready for bed and at one point she was before bed going to the bathroom and washing her probates and looking for tank tops and underwear to match putting on lotion on her legs and deodorant and brushing her teeth and hair and jumping in our bed and yelling "come cuddle me daddy now!!!" Just as if I would get ready to go to bed and have sex with my husband. And I started freaking out! My husband even got to where she was making him uncomfortable. Finally I had enough and 2 months ago I left. When I left for 2 weeks he talked to his mom (which agrees with me completely) and started seeing his daightwr in a different view and saw that she was purposely ruining our relationship. (Maybe some of this seems minor but she would start the most spiteful petty arguments in our house)  but he saw what she was doing and begged me back. Since we got back together things are so much better. He put her out of our bed and no longer sleeps with her except he lays with her and reads to her until she falls asleep. He doesn't let her boss or say disrespectful things. And now we are more of a team instead of letting her put us against one another. Nothing is completely perfect. But they are a million times better. He makes time for me and gives me attention even when she tries her best to single me out and make me feel bad and I comfrtable he makes me feel included and no longer a stranger in my own home. Also he has finally bonded more with his son. She put so much guilt on her no longer being an only child thay she made him feel like he was betraying her by having another child. But now him and his son are bonding great and she's just having to deal with it. Still a few issues and some things she's done are still pushing me. I thought things were so great now until recently!!!

HERE COMES THE CURRENT PROBLEM! 
 

She's always been nosey. Tries to go in the bathroom with her dad and see him naked. And me as well. She tries to come in our room when we are laying together and get on our faces to keep us from kissing or showing affection. But lately she's gotten worse with it. But the way she acts over it has always made me feel she knows about sexual things. So 3 weeks ago we went on family vacation. Our suite had 2 queen beds. She slept in 1 and we slept in the other. The 2nd night there I woke up to hear her across from me tossing and turning and making a grunting sound. At first I thought she was having a bad dream.  It was dark and I said her name to ask if she was okay and she immediately froze. And I said her name again and she said real hateful "what?!" And I said are you okay? And she said hateful again "fine leave me alone". I thought odd but went back to sleep. A few mins later she was griping to her dad to come sleep with her instead and he told her no that she was fine he could literally reach out and pat her arm and she yelled why are you sleeping with her not me. And he said  I told you she's my wife and I'm sleeping with her. That's the end of it we aren't talking about this anymore. She yelled I hate you but went back to sleep. The next evening she got mad at him for making her come back to the room to get ready for dinner. She went into the bedroom and pouted up. I was cleaning up our things and laying clothes out preparing to get ready while my husband took a nap on the couch. I went by the room and paused because she was on the bed with a blanket on her and her knees up and spread you could plainly see and her hands under the cover moving around and when I stopped she jerked up and jumped up suddenly. And I felt really weird and awkward. Never said anything. On the way home from vacation I was driving and looked in my mirror and noticed her with her eyes closed head back with blanket over her and her knees up and she was slapping her knees together over and over both hands under the cover and I got suspicious she was trying to sneak and masterbate with us right in the car! But I kept telling myself no way! I know it's normal. But we've had so many problems with her seriously acting and thinking like she is married to her father. And my husband has always acted like I'm crazy over most things I see and acts like I over react. But his mother and my best friend have seen some things with their own eyes and heard me tell stories and nobody thinks I over react. 
We get home from vacation and don't see her for 5 days then he gets her for the day while I'm working. They stopped by to say hi and she started back to her old spiteful ways "you're stuck at work and daddy is taking me on a date because he loves me more than you or he would take you" he caught her saying all this and scolded her and told her he loved me in a different way but in the way he loved me was more than anyone else and the way her loved her and her brother was equal and more than anyone else and that he wasn't taking her on a date that he only takes his wife on dates and that he was just spending time and the day with her. And she got mad and pretended to cry. He started to beg and apologize and she couldn't help but smile she got her way and finally one is the few times he saw it and he was angry with her. But they went on. And I knew then something was about to get even worse.  I had tried to put the vacation thing out of my head and say it was my imagination or she had sand burns rubbed between her legs bothering her or something. ANYTHING! Well last night we brought an air mattress into the living room and was gonna do movie family night. My husband was exhausted from working a 14 hour shift so while I was cooking dinner he laid on the couch to nap and I peeked into the living room and she's too big for it but she tries to spoon him and throw her legs over him almost straddling him and I said her name and said you're too big for that you're falling let your dad sleep. She yells I called her fat and fake cries. My husband scolds her and tells her nobody called her fat but she was killing him and couldn't sleep and to get off him for 39 mins to nap. She does. But by then she's furious at me for ruining her daddy moment. So at dinner she pretends like my food is awful and she doesn't like it. Then eats 3 plates full. A desert and a bowl of ice cream after. So they lay on the air mattress watching the movie while km

cleaning up dinner and picking the house up before "back to work weekend is over the next day" kind of thing and I glance in the living room and they are laying under separate blankets. He usually does that on his own. But she usually tries to share and he won't but this time when they laid down I noticed she grabbed a specific blanket for herself and for him. My husband can close his eyes anywhere and be instant coma. So she made him cuddle a certain way. A diffeeent way she said. She laid on her back and told him to put his back against her side. He said not face you and the tv? She said no! He was going to sleep anyways. But told him to reach his arm back around her neck and chest to be holding her a little and that she would put her side against his back. He just went on with it and went to sleep. I peeked in there while the sink was filling with water and noticed her in the same position. Knees bent and spread open. Both hands down between her legs. This time the blanket was thin and I could see the outline of what she was doing! She was plan day masturbating and I was in shock and didn't know what to do or say. I loudly stomped through the living room and she stopped. I thought I was crazy. So snuck and propped my phone up and went in my bedroom and used my watch to view her through my phone and sure enough she was rubbing on herself sexually! And I ran in there and made up an excuse and got my husband up. She was irate to say the least I had interrupted her! 
HERES THE BIG PROBLEM!

ive always thought that my SD looks at her BD in a sexual possessive partnership manner. I have thought it since day 1. She lives in a very toxic unstable home emotionally with her BM who is a manipulative narcissist.  She has serious mental and emotional issues. My husband blames himself. He sees how she is. She has no friends. She's truly mean and mean hearted. She bossy. She manipulative. She is not likable at all. She hateful and rude. She says horrible hurtful things and uses people. She's extremely abusive and bullies other children. Especially with her size compared to kids her age. And he knows it. He sees all of this. But he loves his child so much he blames himself because her BM has always blamed him for everything. He's truly a great father and goes above and beyond. But I am terrified to bring this up to him! This is an issue!! Especially with her doing it openly around us and LAYING RIGHT. BESIDE HIM! I'm terrified if someone found out and thought the wrong thing!  He would automatically say I'm imagining it and then get angry. It would most

lilely be a fight especially at first. When I brought up the issues before we fought bad and broke up over my SD. It was literally almost all fights were over her! But once we split and he had time to see her a different way and talk to other people he realizes I was right about a lot of things. But his 8 year old daughter masturbating especially laying beside him and doing it! Omg he would die. I don't even want to know his reaction. 
HELP!!!!?? What do I do? Who do I talk to? What do I say to him?!? I thought about telling my mother n law. I'm extremely close to her and my SD doesn't have the wool pulled over her eyes like she does my husband. Any and all advice is welcome over the mini wife issue and the masturbating issue and my marital issues!!!! I'm completely at a loss and clueless. I'm losing my mind and I am starting to be miserable.