Violence is not the answer. The other lady could be much bigger or stronger; but just letting it go is also not very smart. Your wife should have called the cops and claimed the other lady stole your baby's blanket and threatened your wife. Its that simple. The cops would show up quickly and gotten the blanket back. Even if she didn't have a cell phone with her, just memorize what the lady looked like and what she was wearing, then go to the nearest phone and call 911. Describe her and describe the blanket.
My kids are very attached to their blankets, if my wife let it go, I would be pretty pissed at her for being such a wimp and not calling the cops or macing the other lady then calling the cops to get the blanket back.