You sound as if you handled this mess, beautifully. Sometimes the hardest thing is to not lash out as badly as the step child did. Sounds like she may have been jealous. How would you feel about making her one of her own? Use denims and flannels.
Makes me concerned for the safety of your DG with the step-sister. I hope someone is keeping an eye on her and getting her some help.
Hugs.