Wow - this all is awful. You have to do anything / everything you can to rebuild your relationship with your daughter. I have never even heard of a titty-twister (sounds like a femal version of a purple nurple) but I have to wonder where they got that from - the step sisters?, school friends? Is your ex and his girlfriend making a case about the step sisters? or is it just you? And unless I don't understand something, even if CPS gets involved, isn't child visitation and custody ordained by the courts? how can you ex be allowed to keep your daughter from you?
All that aside, you need to tell your daughter you understand and will respect her personal boundaries. It is healthy for kids to set their own boundaries. She should lead in this area and you need to respect her and make it clear to her. This is a time when an apology should be made by you - not that you did anything wrong intentionally in the first instance, and that in the titty twister instance that you made a bad judgement. Say something liek this - "I love you so much and I don't want anything to come between us. i was wrong when I returned the "titty twister" it was a moment of poor judgement and I hope you can forgive me. I also never intended to make you uncomfortable when I accidentally touched your breast a few months ago. I would never try to make you feel uncomfortabale. You get to set the boundaries for your own body. I think that's a good thing, and I really respect you for doing that. I will honor that and as much as I always want to throw my arms around you like I used to do when you were a little girl I realize that you're becoming a young woman now and I won't. Of course, you can always hug me if you want to."
I do think your ex is making this into a bigger deal than he should but look deep in to your self and consider is there anything else that he could be adding on to, that would make it bigger in his mind. (you know, when taken separately it's not a big deal, but since she also did such-and-such last year....) Was there an old history of alchohol or drugs? Is you ex concerned about the impact of your step-kids and whatever their mom is like and the influence on your girls? It's such a big picture to take in that stretches to your ex-husabnd's girlfriend and her family to the ex-wife of your current husband and her family and the influence they ahve thru the step daughters. If you've soul-searched and find that your ex may have reason for concern you need to address that with him - when you daughter is not around.
As for your daughter - tell her that you want to restore and rebuild your relationship since she and her sister are the most important things to you. ask her how you can do that - what can you do to rebuild that? Be willing to humble yourself as long as you don't admit to things you didn't do and as long as your daughter doesn't take advantabe. Don't become a doormat though. Suggest that you go somewhere where you get to drive for a little while, I find that sitting in a car facing away from eachother allows for good converstaion and doesn't feel forced. Is there a theater, amusement park, zoo, shopping mall you two can go to together? Tell you daughter that you will always, always love her, be there for her, never give up on her, that you'll outlast her, etc.
The only last thing I'd say is be sure that daughter isn't uncomfortable with your husband, her step father. While it's completely natural for a child to feel comfortable around her natural father in a healthy relationship, she never feels that same comfort around another grown man who is not her father. Particulary if she's 13 and growing boobies. Likewise, there's no natural connection and fatherly emotion from your husband to his step-daughter. I am not saying that your husband has done anything out -of- bounds. However, statistically, when girls are abused it is often done by an unrelated man living in their home such as a boarder or step-father or boyfriend of the mom. Keep in mind that most stepfathers never touch their step-daughters or even look at them inappropriately. But when a girl is the victim of inappropriate touching, etc it's not uncommon to be a man who lives in her home who is not her father. And assuming you husband never even looked at her sideways, she may still feel really awkward living in a house with an unrelated man. Also - there does exist the slight possibility that your husband may have touched her, or looked at her, or gotten too close. A healthy man will have a tough time looking away from a devleoped teenage girl in her pajamas.
Be sure to mentally explore all options and cross them off the list as you rebuild with your daughter. Don't be prideful and lose opportunites. If she's ready to go for pizza at 9:00 on a friday night go pick her up and drive to a pizza place at the mall. If she wants a manicure and you're uncomfortable in a nail salon, take a giant step and go with her.
As for your younger daughter, explain to her that there were some misunderstanding and that their dad is trying to protect them. Explain that sometimes people make mistakes, but that their dad is doing his job even if he has misunderstood that there's really no danger to protect her sister from. Explain that this won't last forever and that it will go back to normal one day soon.
Good luck mama. Patience, pray for patience and then use it on your daughter - your relationship will get better as long as you keep at it and try not to make it more dramatic than it already is. Keep it cool and keep going.