What do I do about crazy lady!?

Did u text back? Maybe it's a good idea to talk this out in texts rather than making a scene when you run into each other at the school gates. Just ask her when she thought you were saying her kids smelt. And then explain to her that's not what you meant. It may just be a huge misunderstanding, or maybe she really does have some issues that she is struggling with. But at least you'll know. I know you said the kindergarten was small, does that mean u can't get your kids moved to another class? Well... if you run into each other be polite, but make an excuse and get away quickly. The excuse doesn't exactly have to be a good one, in fact if it's a really terrible one it might get the message across quicker... good luck :)