Moonpi and Madquilter have the BEST advice.
I have to agree with the others on quitting the smoking. It is an addiction, and as such, it's going to be hard. Just remind yourself how much harder it is for a child to lose a parent, or watch them go through debilitating illness. Remind Justin, too...
Honestly, my first reaction was that you well could have reported her for attempted kidnapping. A child who is attended, but has fallen asleep, is not in any emergent danger - which would be the only time a stranger has any right to touch them.
And, remember that none of us are perfect. Sooner or later, we all do something that we regret - parents, too. Rather than thinking perfection is the only acceptable state, which will only drive you crazy (as it would any of us), focus on the things you do right, that you do well, and try to improve when you realize something wasn't right.
Maybe the grumpy old lady is hyper sensitive because she never had children that she wanted. Maybe she lost somebody to cancer caused by smoking. Maybe her mother spent a lot of time sick. Maybe she just likes to be miserable. Don't let her spoil what was a nice outing with your friend and the child that you love.