I sympathize that she upset you. It is upsetting to be screamed at, especially when you have no idea that there was ever a problem.
But your husband is wrong. She wasn't screaming out of jealousy; she didn't come out late at night after she'd gotten ready for bed just because she was grouchy. She was screaming because she couldn't take it any more. I think you can understand that when someone can't sleep because of barking, and it's almost midnight, and they don't know when or if it'll end, they're going to be upset. After all, you were upset when her noise woke your kids - same thing.
If this is the first you've heard of it, it's because most people dislike confrontation and will avoid it until it reaches the boiling point. It shouldn't be like that, of course. Since the neighbors have discussed this among themselves, you know it's an ongoing problem for them - every time the dog is there, in fact. Someone should have approached you during the day and calmly let you know the barking was a problem for them long ago.
Okay, they didn't, but don't write this woman off because she was upset. Take steps to keep the dog from barking at all hours of the day or night. Train the dog or keep him inside. And go apologize to your neighbor. Say you hadn't realized and you will take care of it and you'd like to make amends. After all, it's a lot less stressful to work it out than to hate and fear your neighbors.
Occasional barking is to be expected, but not prolonged barking or barking at all hours.