Your neighbour was the one that ws rude! As for you, you were just standing your ground. She obvisouly doesn't understand the love and affection that these little guys can bring and she also sounds like a bitter old woman for some reason or another. Maybe she's see how happy and is jealous like someelse mentioned. As for her preferring to go shopping - good - she can go do that because with an attitude like that I wouldn't approve of her having a pet, especially a yorkie anyway!!
She made me mad by saying that too.