you deserve to quilt, uncriticized, for the rest of your days, after that encounter! your young friend sounds like a gem, though, and someone who values your friendship. i'm in agreement that this cousin may truly have a psychological problem--perhaps a borderline personality, or even a bit of the sociopath thrown in. these are often people who really, truly can't control what comes out of their mouths, and they believe that they are honestly right, all the time. i hope your friend can forgive her cousin, and balance the family relationship with safe distance!
kudos to you, and to your friend who is sensitive enough to take responsibility for her cousin, even when such things are out of one's control. i say keep her, and throw out the experience!