Well, how about this: They are caught in some warp and end up on the little village under the tree. The old lady is a figurine or something that is part of it and someone is moving her around and that would explain her dissappearances. The phone call ... he could not hear her on the phone because they were shrunken or something and everyone knows that a telephone on a toy layout makes a poor connection to the public service. (Yeah, I know, she thought she talked to him.)

Okay so it is a stretch but these are a few things that popped into my mind as I listened.

I did have fun listening to this one. Obviously, parts of it are left open to intrepretation rather than tying up all the loose ends.