First of all, I am SO deeply saddened by a few posts that seem to suggest that "bad" kids don't deserve compassion, love, and a parent who never gives up on them because they are worth it. IMO that is what perpetuates "bad kid" behavior into later years (when they will be going through also very natural stages that can make their behavior difficult as they test thier autonomy and "adultness"). Also, most making that ascertation do not have their own children the ages of their steps. I guess long and short of it is don't give up on your step daughter. She needs a sane and loving guiding light.
7/8 years old are prime time ages for lying. Kids around these ages need to feel validated and accepted by thier parents (even steps) as they are starting to identify with "adult" (non-babyish) behaviors more than ever. They will often do *anything* to make themselves seem better/bigger than they are. Your step-daughter is in such a rough position and one that's got to be so confusing for her! The "loyalty" she wants to give to both groups is making good choices tough. She is seeking for somewhere to fit in and a happy medium for both parent groups. Do keep good records of what goes on at your house (and also of interactions with her mother). This may really help you in court. I don't know where you live, but I can write letters to Friend of Court detailing occurances and write "For File Use Only" on the top corner so that the letter will be filed in case I need the documentation later. This said, you probably don't want to annoy your case worker sending one every other day, but do write a letter when facts pertinent to the custody case present themselves. Also, let them know immediately EVERY time she denies visitiation. She is NOT allowed to decide to deny visits without court approval, and if she does, your hubby is eligible for "make up" time, which he should definetely take advantage of so his X will know denial is futile. You can continue to confront your step daughter, and tell her how you feel when she lies like that, how you feel scared that it may even result in her not being able to visit you or her daddy or sisters again. Tell her you are dissapointed in the lying, and you know she can make better choices. Let her know that while her lying hurts you personally, you feel sad because you know that lying makes her feel yucky inside too, and that since you love her, you never want her to feel that way. Tell her that she never has to choose between her mom's "family" and you and her dad's. Real love has no limits, and she can love you both freely without feeling like she is doing something wrong. Loving your family is never wrong. Also, I would say that rather than spending less time with this girl, spend some quality time with her seperately as parents or as a family. Also, offer oppertunities for the girls to bond and remind the step-sis how much your girls love and look up to thier "big sister". This will really help your daughter have a sense of pride in herself and help her to feel approval and validation not only from you but from the younger sibs. No matter what the mom says, or what happens, she will have happy memories of being with you both, and will find her way back to you remembering those happy times. Maybe her mom is just lonely and afraid that her daughter is so happy over there she won't love her own mom anymore or will want to "leave her" and move in with you. Maybe a compassionate talk with the mom would help as well, stressing both what the mother might be feeling and what the step-mother is feeling, and shareing observations on the daughter's feelings. Of course you don't want to get the daughter in trouble, but a carefully constructed conversation might do wonders. I do hope that this works out well for you. Let us know how it turns out!