Well, I think I would just avoid that family for a while if you can. There's really not much you can say to the mom beyond what you have already said - you put that out there and she didn't want to pick it up so you can't force her to acknowledge the behavior and if she won't even acknowledge it then she surely won't be addressing it. If you can't avoid them then I would tell your kids to avoid interaction as much as possible and to ignore any mean thing he says because he is being mean and rude and it has nothing to do with them. It sounds like there's something weird going on with him that might blow up in your face if you try to address it.
"Any idiot can face a crisis; it is this day-to-day living that wears you out." -Anton Chekhov