"I tried to keep the alley open so that when utilities had to get in the alley, people could at least exit the other end."
Try not to let it spoil Christmas.
If this recent change 'doesn't work out', it can be revisited, right?
Your attitude is the one thing you can control, not your neighbor, the city council &c.
It is hard though. I am the type of person that cares about what people think and feel. I am just totally surprised that one person can cause so much discontent among neighbors and not bother her one litte bit.