Sounds like that lady could use a good swift kick in the arse. What a loser! I understand that some people are scared of dogs, whether it be from a previous attack/bite or whatever - but they have to realize that just because one dog hurt them, doesn't mean every dog will. I was bit as a child by a GSD. Even though they are such beautiful dogs, they still scare me (just a little bit), but I would never think because one GSD bit me - they all will...
And I could see how scary it would be for her to see Chester and Cowboy lounging around, my goodness - I'd be running for my life!!! Ha ha - just kidding of course. I think some people are scared of "bigger" dogs in general. When we had our Rotti Slater (he was 146 lbs) people would deliberately cross the street to avoid passing him on walks, and he was the biggest suck ever.
I'm guessing she was just being over-protective of the kids, and was worried about her own arse being on the line should anything happen to the kids. Regardless, her extremely over-reactive behaviour (and reference to Steve Irwin) were uncalled for...