The Big "C" - Bully For You

We recently learned that C's biological mom is having some health issues. Earlier this month she had a minor car accident, and while getting X-rays, the physician discovered a goiter/mass on her thyroid. After seeing an endocronologist, getting more tests, and discovering some hinky spots on her lymphnodes, they are pretty sure she has some type of cancer. Wow, pretty scary. It is intensified by the fact that, along with C, she has an 11-month-old and is currently going through a rough divorce. She hasn't always been the nicest person, but no one really deserves to go through this alone.
B & I are trying to be as understanding and helpful as possible. She has surgery on May 15 and we'll be keeping C for at least a week - maybe two. C's brother will be staying with a friend who has a flexible schedule and can stay at the mom's house.
C is taking it pretty well, but she's really having issues at school with her nemesis M. M is an incredible bully who regularly tells C she's stupid, weird, and fat. C handles it okay, but her passivity is allowing M to beat her down daily. We have all attempted to talk with C about not taking her shit, but the benign, benevolent forgiver in C won't stand up. She even tells us how great M is and how nice she can be sometimes. C even goes as far as calling this brat "my friend." When C says these nice things, most of the time I gently remind her that this girl is a bully, and friends don't make you feel like shit on their shoe. Sometimes I just want to shake C and shout, "Get a goddamn backbone! Smack her - it's okay, we'll bail you out!"
Anyways, C came home the other day and said that M has been telling her, "Your mom has cancer and could die. My mom's gonna live - she doesn't have cancer like your mom." Whoa.
I really want to call the teacher on this one, but it's not my place. I have learned over the last 8 years that stepparents have a place to take action, and this is not my place. All I can do is coach from the locker room, dry tears, and continue to try to wipe this fog of "Please like me" from the eyes of my child.