What you just described about this woman IS the definition of DYSFUNCTIONAL: The wideness of the gap between the person's stated value system and the person's behavior patterns signals the degree of dysfunction. This has nothing to with being--or not being--a JW, per se. JW just happens to be the backdrop against which her dysfunctional theatre is performed. Often times, dysfunctional people may truly see the JW way (or the Catholic way or the Muslim way, etc.) as being the 'best' way, but they feel inwardly that it's too late for themselves--they can't be 'saved' or helped in away. [A certain amount of self-loathing there, believing themselves to be beyond repair or unworthy of the effort.] But they believe they still can and should do something to save their children from becoming like themselves. ...So, they attempt the pathetic do-as-I-say-and-not-as-I-do style of parenting.
Either that, or she could be just not wanting the kids to thoroughly enjoy time and attention at your house, viewing it as a competition. Unfortunately, some people do that kind of thing too. Still others do it because they recognize the exploitation capital to be gained in having a 'good little Witness' be brought under their control. My ex-husband used to do this all the time with ME: Not apply the principles to himself but expect the all the RULES to be appled to me. And for a long time, it worked.
In any case, just continue training your kids to believe in their OWN WORTH, regardless of what religious affiliation (or even none). They'll manage to avoid the worst of the pitfalls their mother seems to set up for them. Good luck dealing with it all!