How can you sue someone for something they might do in opposition to what you're doing when the thing you're doing is technically not permitted to begin with?
Usually it's called a "declaratory judgment" action -- you are asking the court to declare what your rights are before you have an actual problem. It makes sense if you think about it (putting aside 11,000' mansions!), because there are a lot of grey areas in the law. For ex., say you buy an old cabin, and you plan to do a $50K remodel to it. But then you discover that there are new requirements that apply to any property built after (say) 1970 that would increase your reno costs to $300K -- and you can't be 100% sure whether your cabin was built in 1969 or 1971 (and you sure can't afford $300K if you guess wrong!). A declaratory judgment action allows you to ask the court to decide whether those new rules apply to you, so the building department or whoever can't come after you 10 years later and say, oops, you screwed up, tear it all out.*
Now, obviously, you'd hope the lawsuit was a last resort. But once she decided to file it, she had to include everyone who might have an interest in it, just out of fairness -- otherwise, the people who were excluded might not even know and so would never even get the chance to object to the project.
FWIW, I would not sign a broad release like that either! I'd want something more narrow -- e.g., you don't object to the plan as it currently exists in XYZ document that was filed on ABC date, or you won't object on the basis that the design is 5' over the setback. I like your idea of writing the court and saying something really simple, like you don't object to the 5' issue, but her lawyer has demanded that you agree that anything she wants to do is fine, and you can't afford to hire a lawyer and are worried about being subjected to attorneys' fees if you don't agree to that demand, and so please dismiss you from the case (or at least strike the demand for attorneys' fees).
