It's so hard to evaluate what really goes on in the girl's house. She may be terrific with you, but problematic for her mother. The mother may be worried about sexual activity, but she may simply be trying to regulate her daughter's behavior (or backtalk or grades or whatever) by controlling the most important thing to her daughter - your son.
I would strongly advise you NOT to engage in discussions with the girl about her mother, and to be very careful what you say to your son. If it gets back to the other mother, via the daughter, that YOU think she is unreasonable or unbalanced, the whole thing WILL blow up in your face and have terrible repercussions for you son. You have to try to support a parent's right to make decisions even if others may disagree with them.
I understand that you worry about rebelling and getting into unhealthy choices/decisions, and I agree that excessive control can do that. However, so can too loose an attitude. And maybe that's what this mother is responding to - a perception (however incorrect) that you are too permissive, or that other parents in town are too permissive.
Concerns about prom costs are reasonable as things get out of control (and perhaps they have very severe financial constraints you don't know about), although of course it's a little ridiculous to get so involved in colors and corsages! But I think you have to try to respect the mother by putting a positive spin on it - "she just wants to be involved with your events before you leave home" or something like that.
The kids have to learn how to manage this situation themselves. It's good that your son talks to you, and you should be proud of that and continue to encourage it. But he's got to learn to deal with difficult people in life (teachers, professors, employers, and yes, the parents of girls he dates) and now is the time to help teach him these skills.
I think, if you are careful and cultivate a relationship with her, that you may be able to talk to her about something very important, as a previous post suggested. It might be more acceptable to her if you didn't talk in extremes (boxers and sneakers) to make your point. Yes, it's his day, but it's also not really appropriate to go to a prom dressed that way, is it? So, in making your point to a person who tends to go to extremes the other way, it might help to just bring her to the middle! You may well be right that she is unhappy and bitter, and a control freak - but parents of daughters sometimes are more protective and worried. The next time she brings up how much she loves your son, thank her and make it clear that he's been raised with standards and manners, and you have high expectations of him. The more often she sees him as a good kid, the more leverage the kids will have with her.
