"A mother should be able to touch her child any way she wants!" - that is pretty disturbing and chilling; my mother never verbalized it but I'm sure she (still) thinks along the same lines.
You bring up a lot of good points that I can easily relate to looking at my relationship with my mother...sexual overtones, boundary crossings, range of feelings, emotional literacy, confronting, etc. I think what got me the most was "feeling what shouldn't be felt". I'm guessing you meant a parent's lust for a child. But I guess it could also mean 'negative emotions' like anger/hatred/rage etc. And I absolutely agree with you - it was only when I was about 21/22 that these feelings started becoming conscious to me, and that the bubble made by dissociation and being 'warped' by the physical intimacy started to burst.
Oddly enough, I happened to talk to her over the phone today. It's been about two months since I talked to her. At least I'm at a safe physical distance from her. But it didn't go as badly as I expected it to go. A few things helped me. First, verbal defense - just labeling quickly the things she's doing, and calling her out on it, whether it's minimizing, lecturing, mocking, framing, self-pity etc. There's so much power struggle going on, but being aware of this helped a lot. That really it wasn't a question of love - what she had framed our relationship previously, and which I unfortunately believed but thankfully not anymore - but of power. Also realized how thanks to MS and psychology and whatnot, I now have the language to defend myself and just how much of a huge difference that makes in (re-)asserting boundaries... And second, maybe more important - just lowering expectations of her. Just expecting a lot of bullshit prepares you for it I guess.
From what you've written though it seems like you're making real progress and that there might be a glimmer of hope in your mother changing her attitudes/behavior. I hope that's the case and that it improves as time passes.
Growing up isn't about losing innocence - it's about learning how to keep it in a cold and unforgiving world.