I think you were rude. Unless there is a posted policy stating that they won't wait on people on phones then you leave it up to the cashier to make that call (no pun intended).
I think that it's not necessarily about the cell phone, but about the fact that the woman was standing 10 feet away and clearly not paying attention, and expected the rest of the world to wait around for her. I think that the OP had every right to protest the woman's claim of being in line...
There have been times when I was in line, without a cart and without anyone behind me. I only had a few things in one hand and then I saw a magazine or a package of gum and walked 2 feet away, for 2 seconds, to grab it and come back in line. Then, when I turned around, I saw that someone had taken my place in line because they didn't think I was in line. I didn't freak out and call them rude. I didn't even say "excuse me, but I was in line. Get behind me." I realized that I had gotten out of line or given that semblance, and without a cart to hold my place, I just got behind the person who had inadvertently cut in front of me.
She sounds like the kind of person who can't see anything from anyone else's perspective and thinks she can bully her way through life by being rude.
I think you were not rude at all and your answer was appropriate, polite and firm. And good for you for not just getting behind her.