what an interestng topic. and quiet taboo isn't it! following is my opinion and not a judgement on anyone else or their lifestyle.....
like someone else said, would you want to be cuddled and held close to someone who wreaks of cigarette smoke? Personally, I wouldn't. But if they didn't wreak and weren't smoking around the bub, I could care less what toxic chemicals they want to inhale.
I too am a reformed smoker and I also find it extremely distasteful. I am hyper sensitive to the smell too (i reckon cos i used to smoke) and just associate it with an unhappy, unhealthy time in my life.
I don't really have a problem with people smoking, so long as they keep it and the smoke it generates to themselves. which my friends who smoke do. otherwise it's what MummiaMia said .... too bad, so sad, go away.
Your home, your baby, your rules - to me it sounds like you'd be better off just avoiding the invitation altogether cos it's obviously stressing you. I also don't think you need to explain or justify why you make certain choices for your family and child. It would be differnet if you were going to her home iykwim.
to me it doesn't sound like you can reconcile her behaviour with the standard your DH expects and come out smelling of roses to everyone.
And for the record, I also wouldn't let someone with BO and a sweaty shirt hold my baby either.

