Oh my gosh, I woke up to so much GREAT advice! Thank you all for chiming in. Especially those familar with renting in California - it really is it's own beast.
I don't have time to reply to everyone's individual comments right now, but I am reading them all and taking notes.
I do want to respond to the question about the smoke. At the initial showing of the middle unit there was no detection of second hand smoke. The new tenant was not guaranteed a smoke-free premise although her lease told her she couldn't smoke in or out of her unit. Funny enough on the first night new tenant lived there, Smokey came over to introduce herself and asked if she could light up on the new tenants patio and was told yes. Smokey proceeded to hang out for a couple hours and the new tenant said she was "chain smoking", but never asked her to stop or say it was too much. I understand not wanting to be rude on your first night in a new place, but she clearly was ok with some smoke. Personally I hate smoke (it makes me feel ill) and would never let anyone smoke in my surroundings if asked.
@Mike Easton the ONLY thing I can come up with that might explain the smoke infiltrating the unit when the new tenant moved in is that the new tenant brought with her and set up some sort of bedroom window A/C unit that vented air outside. Could the suction/draft/venting somehow caused the smoky air to get pulled into the unit? I'm not sure, but my husband thinks that was the cause. There is an adjoining set of doorways between the 2 units, like a hotel room. They are 2 exterior doors with weather stripping, and styrofoam in between them (long story of why it's like that). Anyhow, I believe that is where the smoke is coming in. It has been like that for at least a year with no smoke seeping in, but I wonder if that A/C unit had somehow created just enough of a draft between the 2 units to pull it in. Now that the new tenant is out (along with her A/C unit) will see if there is a change.
To add more clarity to the situation, everything went down very quickly. We went from finding out about the smoke and sending the initial letter 2 weeks ago today, to being called that Smokey was being hostile this last Monday, to giving Smokey the 60 day letter and trying to find smoke entry on Tuesday, to tenant saying she was going to move out on Wednesday, to her moving out on Thursday and doing the walkthrough on Friday/yesterday. Everything unravelled very fast.
The good news is that Smokey emailed this morning saying she would be out by the end of the month. Fingers crossed that she really is.