Hi J.,
Wow, this is a loaded question! You're right -- if you want to keep this woman as a friend you'll have to tread carefully here. First of all, ask yourself how truly important a gift is versus personal interaction. If you value the monetary aspect of a gift more than the intention of the gift giver, then I would give the book back and tell your "friend" how you feel about her actions. Since the woman sounds somewhat self-absorbed from your description, expect the friendship to end there and then. Also realize that this could say something about your own sense of materialism, and expect a backlash.
However, it sounds like you're more hurt by the sense of selfishness and lack of feeling on your friend's part, and also that she would be so shallow as to give away something that was intended to be a very personal gift for someone else. I this case, I would discreetly give the book back to her a say "Oh my goodness -- you must have grabbed the wrong book when you were wrapping little Susie's birthday present to my daughter. I saw her grandparents' message to her in the front cover, and I'm sure Susie will be upset when she realizes that something so special is missing." This will put the onus on your friend to then reflect on her actions, and might open the door for a caring conversation. Or, maybe not. But, what's the point of showing the gift to her husband and just starting an argument in their home? That seems petty and vengeful to me.
As for not trusting your friend, I figure it's better to "know your enemy." If you know your friend talks behind your back, then be careful about what you do and say around her. But, keep in mind that this "knowledge" has come in the form of gossip from another person. Do you trust that person's comments more than your friend's actions? Only you can make that decision. Also, if your friend has a reputation for backstabbing, keep in mind that others getting gossip from her will likely take it with a grain of salt and (hopefully) not allow it to affect their relationships with you and your daughter. If and when such gossip does affect you, that would be the time to address it with both the gossiper and the listeners.