Thanks for your reply, Sam Vara, and the reminder to do what one can.
You also wrote...
There are two different questions here. One is about whether you are behaving ethically in continuing to work with this person. Providing you don't react badly to her, or copy what she does, then it seems you are behaving ethically.
It has gotten more difficult to maintain my equilibrium recently, with the recent ramping up of the half-truths. And then there is this, from Bhikkhu Bodhi...
Particularly critical to our spiritual progress is our selection of friends and companions, who can have the most decisive impact upon our personal destiny. It is because he perceived how susceptible our minds can be to the influence of our companions that the Buddha repeatedly stressed the value of good friendship (kalyanamittata) in the spiritual life... If we aspire for the highest — for the peaks of transcendent wisdom and liberation — then we must enter into association with those who represent the highest.
I'd like to think her behavior isn't influencing me, but these words ring very true and strengthen an inclination to disassociate, freeing up time to spend with those who hold the Dhamma dear.
And for the other question you separated out, Sam Vara,
The other question is about whether you want to work with objectionable people. That is not so clearly ethical, just a matter of personal preference and what you are prepared to put up with.
Honestly, I feel I've given it a very fair shot, working hard for nearly 2 years to shift things. With the recent regression, I find myself deeply weary of it now.