How does one respond to this?

The best way to shut someone up is to go along and passively ridicule them. In this scenario, I would just jokingly admit to worshipping Satan and drive the lady up the wall until she shuts up. Truly, if people's opinions impacted me in any huge way, I'd be an emotional wreck. Have some fun with it, that's what I would do.

That lady's logic is like stating that just because I dress as a vampire for Halloween, I automatically have an uncontrollable desire to drink other people's blood. It's incredibly stupid to say that just because Satan took the form of a snake in the Bible that all snakes are evil. Hell, I've seen my friend's pit bull hospitalize someone...does that mean the dog's evil? No, that's what an animal is...it's primal. Personally, I don't believe that animals have the capacity to be evil. They exist to eat, poop and reproduce (and those with a limbic system, to love). As long as those needs are met, their life has meaning.

My best advice is to ignore those types of people. Ridicule them passively, laugh, get enjoyment out of their ignorance...and keep enjoying your beautiful, slithering devil spawns :D