Here are my crazy Diane theories:
1. Diane is straight up evil and collaborating with Mr C for nefarious reasons. They’re gonna do evil together and it’s gonna be great. She hid Dougie (who is basically Mr C’s horcrux) away with her sister because it was the safest place no one would look AND she could monitor him.
2. Diane was gaslighted, brainwashed, or otherwise fooled by Mr C, possibly on that last night she won’t talk about. She may think he’s the real, good and whole Dale, and that he was genuinely working undercover with Jeffries. She developed some suspicions over the years, which were confirmed in the federal prison. In the scenes we’ve seen so far, she’s playing both sides and not trusting anyone just yet. I don’t have a satisfactory explanation for why Dougie is with her sister in this scenario. I came up with it before that reveal.
3. Diane was never really fooled by Mr C, but she also knew she couldn’t stop him. He either forced or manipulated/threatened her into cooperation. She came up with the idea to place Dougie with Jayne because it was, again, a safe place no one would think of (they hate each other) but that she could monitor him (Jayne absolutely sends out Christmas letters and photos, just to spite Diane).
4. A slightly less believable version of #3 is that Jayne knows who Dougie is and agreed to protect him for Diane. Note that for all the shit she gives him, she’s still very protective. Maybe even motherly (Dougie in his current state requires that, but even if Dougie used to be slightly higher functioning, it doesn’t seem like a new dynamic). She and Diane don’t hate each other truly, OR they hate/love each other in the way that families do, while remaining deeply loyal to each other or at least the idea of family bonds. This doesn’t really explain her behavior towards him though. Maybe she’s just playing along with a reality she thinks Dougie is comfortable in. She knows he’s fragile.
Another idea that could go with any of these is that Jayne is Diane’s half sister in the sense that she is a tulpa created by Diane to protect and care for Cooper. Possibly, things went too far and they thought Sonny Jim into existence, meaning they could think him out of existence too.
Anyway, these are my cracky, crazy Diane theories. I feel better for writing them all down! I fully expect to be completely wrong.