I have a similar messy relationship with my parents, who are alcoholics, and I'd say that being firm but flexible is the best way to go.
When my daughter was little, I had to move in with my parents (who live in California) for financial reasons, but I made it very clear at the outset that I was the boss where raising my daughter was concerned, and they respected that (and my mother recently commented that I was a better M. than she ever was, which was nice to hear). My daughter ended up having a great relationship with them until we moved to Chicago, at which point they basically "opted out" of the whole being-grandparents thing, which was actually OK with me--I didn't really want them around her during her teenage years. They visit occasionally (every couple of years or so), and send holiday gifts, and are coming out for a week this June for my daughter's high school graduation (which will be interesting).
So, I guess what I'm saying is, if you can set your boundaries very clearly early on, it's best not to cut your M. out completely, because that just sets up the kind of power struggle she probably wants/needs/is familiar with. Just be firm, and think before you speak, and be the best M. you know how to be, and watch out for the emotional potholes that can spring up between you and your M.. Your daughter WILL formulate her own opinion (whether you want that or not), so make very sure that her opinion is based on her own experience, not yours. Listen as much as possible if/when your daughter talks about your M., and don't trash-talk your M. if your daughter asks about her. She may surprise you one day, as mine did, by saying something along the lines of "Gramma's kind of selfish. But that's just Gramma." Chances are, if you do your job (i.e., being a M.) right, it won't matter what your M. does, and the things she does that hurt you growing up won't have any affect at all on your daughter.
Hope that helps. Good for you for working with a therapist! Keep seeing him/her if you have a good one, and if you don't, find one. There's nothing more important than parenting, in my opinion...