Sounds like you have one great breeder--you should consider yourself VERY lucky. I truly hope everything works out...this is a very difficult situation to have to deal with.
Yes, I have heard of vaccinations causing the disease they're meant to protect against. I've never heard of it in dogs, but it makes sense. I sounds like (knock on wood) that it isn't going to affect your other baby, which is great news.
Good luck and keep us updated on the recovery!