I disagree with the advice re being very blunt and very aggressive with how you deal with Crazy Lady, because she lives right next door
, is probably in the throes of some hormonal irrationality (depends on what you mean by "older") and if she decides she's ticked at y'all, could make your life a living heck. I envision constant complaints to the landlord re the "noise" you're making, or whatever. Do not make an enemy of this woman. You don't have to take her nonsense, but you don't have to go nuclear on her, either. The OP clearly doesn't feel threatened (rightfully not) and to treat her in any way as a "romantic threat" will just reinforce her fantasy.
Really, DH has all the power here. She probably interprets his ignoring her during his workout as tacit acceptance of being watched. The next time she wolf whistles him, he should put the weight down, walk to the point of the balcony closest to her, and say "Mrs. Crazylady" (do NOT use her first name, if he knows it), "if you interrupt my concentration during my workout, I could easily mishandle a weight and hurt myself. I don't like to be watched when I'm working out. Please do not do so." If that doesn't work, building a barrier (or putting up a makeshift one) will solve the problem. How about a stand with a bunch of plants on it, if you like that sort of thing?
Why confront her crush directly? You'll make her feel ashamed, and that will become anger and defensiveness and ugliness before you can blink. Polite, cool, respectful behavior (as one should respect one's elders
) will give her a chance to control herself and pretend maybe nobody noticed or remembered her lapses from normal behavior. She could (eventually) become a good neighbor.
If your DH has a Russian accent, could you get him to use one that's less sexy? (only kidding)