As regards A :
Sometimes misunderstandings happen - and sometimes two different people will have a wildly different perspective on the same events.
Is it possible that X didn't realise the damage they were causing - could they just not have realised what a big deal it was? Could it be a joke gone wrong? Could Y be over-reacting?
It seems strange for a friend of that long standing to suddenly go bad! I think the length of the friendship makes it worth digging into the situation to try to understand how this has come about. If, after investigation, X has done this out of sheer mischief or bitchery then the friendship is probably not worth salvaging. Concentrate on Y instead.

As regards B:
Definitely option 2. Don't get involved in reprisals - it can turn into a vicious circle. You probably would be very unhappy if you were to act in the same way as X, so just don't do it (why make yourself more unhappy). Lead by example and do as you would be done by - despite having already been done to...

Best of luck with repairing the damage.

Kris