My heart goes out to you and DH, NannaR, as well as poor XDIL. I feel for the children, too, if they're caught in the middle of a lot of tension. But, fortunately, you say they seem to be happy w/ the co-parenting arrangement. It's not an unusual one these days, to my knowledge, so I doubt that, in itself, is causing any harm.
However, if XDIL is worried about your son's reaction when there's a problem w/ one of the children, that, IMO, is a cause for concern. But IDK if there is much you can do about it if she won't. Maybe if you had tangible evidence of some kind of child abuse, but you probably don't.
I take it that it came as quite a shock when DS expressed his unhappiness, and I am so sorry about that. It sounds as if the immediate issues were in his marriage, though, since he already had a new partner. Why he struck out at everyone else around him, I don't understand, and can see why you felt it might mean he had a MH problem.
I do understand his being upset if XDIL didn't inform him about an issue concerning one of the children. After all, he is their parent, too. However, since she was worried about his reaction, I also understand why she didn't tell him.
It's not clear to me how that translated into his not wanting her to contact you. Perhaps he thought you influenced her to keep quiet even though you didn't? Or maybe he was angry if he thought/found out you and DH knew about the situation even when he didn't? Or was it his way of, effectively, cutting you and DH out of the DGC's lives since neither he nor XDIL communicate w/ you now? I'm not sure if you're getting to see the DGC anymore. But I suspect you aren't, and, IMO, that is so sad.
IMO, since the contract is merely a copy and he's not asking you to sign anything, I would read it, just to be sure I knew what it said. I know XDIL told you the "rules," but she might, inadvertently, have failed to repeat everything the way it is written. I would want to look for myself. But that's up to you and DH, of course.
I agree w/ others that it's not enforceable. And that it's bullying to use nasty texts, etc., as a way to get her to sign. Not to mention that DS doesn't have a right to tell XDIL who she may and may not contact. But, as you seem to feel, yourself, it's her choice if she decides to accept all this.
I'm glad you're not taking any specific action till you think this situation over more carefully. I trust you'll make a wise decision in the end. And I'm glad you intend to keep us posted. xx