Well first things first we have a rather good support network for disabled peoples here in the UK as well as a decent (but frequently misused) network to support people in need of housing so I suggest taking a gander at the directgov website to see what support you may be entitled to, a housing grant is one of them. Additionally there are a number of charities out there depending on your local area which will help you find a place to live suitable to your needs which are also worth looking at to help get you back on your feet. Even if the worst comes to the worst I'm sure with four children the council will find some housing for you rather promptly but I do recommend getting in contact with them to see what they can offer.
As for your landlady I suspect she's "reclaiming the property for personal use" which unfortunately in the UK is a perfectly legitimate clause if it is written into your contract. However if she wrote a blatantly untrue reference then that is against the law and you may take her to court if you so choose, if it was her opinions that were negative then it's difficult to prove but if she is claiming falsified damages and neglect then that is rather easy to prove in your favor. I personally feel that there's a fine line between vengeance and just defending yourself with landlords, so long as you're out to hang on to what is rightfully yours then I think that's ok personally, after all most landlords will try to squeeze you for every last penny and you really mustn't just lie down and take it. That said once it gets to actual petty vengeance it does take a degree of strength to refrain, I admit that I didn't have it with my last landlord and left a couple of (actually rather comical) surprises for her around the house. To be honest though in this case I think you're energy is far better spent resolving the problem than in starting a vendetta with her, after all you're going in for surgery and the last thing you want is to have to deal with her whilst you're recovering so look at it from your own benefit and try to keep everything above board so that once you are finished with her you'll never have to see her again.