It's interesting that #2 didn't express any concern about whether or not they could meet DD's needs, only about whether I could actually accept being 100% hands off and letting them have free reign.
Given what you've said, I suspect that your DH's reaction is partially a potentiated one given the stress you've all been under, but even so, I'd consider that a HUGE red flag.
Shouldn't they be
reassuring you that you'll be COMFORTABLE enough to be more hands off with her there?? It just strikes me as beyond bizarre that the director was so hostile about your involvement. I'm a bit paranoid after my own experiences in academia, probably, but I'm wondering if this person has any friends within the local district which would explain some insider knowledge from a perspective other than yours... :ahem:
If so, that person is potentially COMPLETELY toxic. That's what my gut says, anyway. I think that your DH is right to view that situation with deep misgivings.
If you did #1, could you commit to TRYING it for a year? Until Christmas?
In spite of the obvious things that you'd lose in doing that, maybe it's time to consider some of the possible GAINS, too-- like a closer relationship with grandparents? The possibility of a much wider pool of peers from which to draw activities and friendships? Broader availability of appropriate extracurriculars (given a more urban setting)?
