|It sounds like the employees in this department are stuck between a bully and a hard place. Either they endure the harsh treatment by this marginal manager, or they run the risk of termination for going above her head. As a result, they came to you.|
Your initial step was the correct one, since it would not be fair for you to immediately rush to her manager without meeting with her first. However, you may have come on too strong. You mentioned that you "confronted this lady," and confrontations usually do not have happy endings. You should consider revisiting her, but rather than using a confrontational approach, try to use more of an educational approach. While maintaining the confidentiality of her staff, go over the specific issues and present some strategies to help resolve them.
If she again tells you to mind your own business, she simply does not understand the fact that when employees from another department approach you for help, that is your business. It is also your business to discuss this situation with senior management.