This same thing happen to me last christmas. Booked a 2 bedroom CHRISTMAS week at BCV for 7 of us for 7 nights. Told my aunt that if they weren't going to stay the whole time to let me know EARLY ( like by August) so I book me and my mom into a smaller room when they left since christmas week is the highest points. She had 11 months to let me know. October she tells me they are only going to stay 4 days. of course, there were no smalller rooms left for me to down grade me and mom to for the last 3 days. So I had all that space for 2 people and wasted a ton of points in the process. I will NEVER invite her or her family to stay with me there again. Only when we all went to the Saratoga Springs DVC tour did they get why I was so mad and how they wasted my points.
As I read this whole thread, I was thinking "I hope the husband is agreeing with the OP about this". Sounds like your husband is in your camp. Sometimes, our spouses don't even understand DVC like we do and we've seen instances where the "friend" causes some ******* in the household.
You will have a great vacation in a 2BR...that's how we travel with my family of 4 total. And as you have pointed out, at least the guy is hopefully out of your life.
In this whole saga, my heart really goes out to the daughters of the jerk.
THis may have already been said here, but if you have not yet checked in and there are smaller rooms available, you haven't lost your points. They'll be put into a holding account and need to be used by the end of your use year. You could rent them out before that.
Otherwise, the 2 bd-room could be a nice option for your family to spread out in. I hope that either way, you have a great trip!