Momindistress, I am very sorry of your situation. I am NOT a professional, but you are describing...
Momindistress, I am very sorry of your situation. I am NOT a professional, but you are describing what sounds like Oppositional Defiance Disorder and ALL parties involved must be on the same page and in complete cooperation with professional counselling therapy. There is no medication, sugery, or wishful thinking that is going to "disappear" the genetic and/or environmental impact that this child has experienced.
Having typed that, I don't understand your husband's hesitation (or negligence) in seeking joint or shared custody of his offspring. Unless there is some parental disorder that would damage a child, parental cooperation is vital in raising an emotionally healthy child.
From your own description, your baby is AT RISK when left alone with your step-daughter and has most likely already been abused to some degree ~ emotionally, physically, or sexually. She was obviously masturbating herself on your baby and, at age 12, her actions are NOT simple "exploration" or harmless expression.
It would be a very wise decision to disallow this child to be left alone with your baby, at any time under ANY circumstances. It also may be advisable to examine the dynamics of your marital relationship ~ just saying.
My most sincere best wishes for you, your baby, your stepchildren, and the safety and well being of all parties involved.