I don't blame you. I would be VERY mad too!
Yes, it seems like supervised visits are the only option here, and I would definately bring it up to your husband. This is one of those situations where (for me) I would have to put my foot down and if a HUGE agument was what it too to get him to understand that this is NOT exceptable and NOT something that I could just 'blow off' then sobeit!
Do the unthinkable...send DUG to live with her!