I went through a similar ordeal with my own MIL regarding our youngest daughter's first name, which is Mykala (like Michaela but spelled differently). I don't have to fear her granny or anyone else calling her by her middle name until and if she wants to use it because 1st and middle names are Mykala Brantley.
We (DH & I) had to sit his mother down and have a long heart-to-heart regarding our youngest daughter's name and that she would have NO nickname except for the one we've used since she was old enough to hold a pencil & crayons and that nickname is more of a term of endearment than anything else b/c it's "Doodle-Bug" and the reason is because this child has had a gift for drawing anything and everything from scratch without any tracing and it is an almost if not perfect duplication of things she sees.
With regards to her first name, I made it perfectly clear when we named her there would be no Kala or Kayla or any derivative of her name. It's Mykala AND it has special meaning behind it.
You see, I was told from the 5th grade I'd never have children or if I managed to get pregnant, I'd never then carry to term and would likely lose any children I choose to attempt to carry to term. The docs don't know everything, is all I can say. I have a wonderful 23, almost 24yo daughter who is in her 2+ mos anniversary of marriage (they were married on Oct 24, 2010). I nearly lost her many times too but I didn't know her sex before she was born so there were lots of names on the list and we sifted through names that fit with my maternal grandmother being as how I am her namesake and wanted my oldest to carry a piece of the same woman whom I was named for with her. As for our youngest, we knew by the 6th month mark (actually earlier but it was definitive by 6-mos). I knew I wanted to use the name Mykala but being as how her dad was named after his maternal grandfather not to mention the fact he is the spitting image of the man from the 1 photo I've seen of him over the years with him in his uniform from WWI. Nothing fit because Joseph is a boy's name and Coy didn't match so I chose to use his last name as it went well with the 1st name, which is how she came by the name Brantley. Plus, it will look great on letterhead should she decide to go into business, art, writing, etc... Her father is his maternal grandfather's namesake and in staying with my family's tradition, now our youngest daughter is also her paternal great-grandfather's namesake as well just like her dad.
Her first name has special meaning because after spending more time in the hospital than out throughout the pregnancy, not counting the bed rest from the 1st trimester, nearly losing her more times than I can count, and the addition of fighting toxemia, pre-eclampsia, odd test results for spina bifida. The reason for the high-level ultrasound at 6mos gestation was due to spina bifida testing where we learned she was most certainly a she and even more so, it was done on the day of our oldest daughter's birthday and a 2-hour delay in school starting because of ice and sleet the day before there was nobody who was able to take her to school so she came with us; it was her birthday and so when the doctor asked if we wanted to know the sex, we both said yes. He overheard our oldest going on and on about her birthday & if the baby would have her birthday or not; the doc asked her what she wanted for her birthday, a little brother or a little sister. She squealed - literally - with delight and told him she wanted a little sister. He whispered this into her ear telling her happy birthday in the process then adding that she got her birthday wish -all loud enough for us to hear. From that moment on, we heard nothing else but how she was having a little sister for her birthday. It was cute. But, after my many hospitalizations, it was hard on her too because she was afraid her baby sister wasn't going to make it.
After 19 and 1/2hrs of labor (no credit for time served so there went the concept of the 2nd child coming much faster; the oldest came in 13 and 1/2 hours) with the help of a pitocin drip to speed up the labor because my water broke at like 5am & the contractions started almost immediately but they never progressed fast enough w/o the assistance in pushing the labor along.
My water leaked from the uterus in small trickles the last few months of the pregnancy & the docs were afraid the sac was going to break at the slightly jostling so there was no moving about too much or I'd risk losing her early. The day before Christmas Eve, I began bleeding from where the placenta was trying to separate yet again but they were able to get it under control. Those extra few weeks allowed her to get up to a bit over 6lbs so it surely paid off in the end but after all those hours of labor then delivery & DH and I arguing about how I wanted her to have the name Mykala, he gave up the fight the moment she was born and we were within an hour or less of the doctor sending me to the OR to have a c-section b/c we were reaching the 24-hour mark & didn't want any detrimental effects on the baby.
DH went to my room, which was already set up and the nurses had put our oldest down on my bed to rest while waiting for me to deliver. He brought her back so she could hold the baby. My first words were, 'Are we going to continue to fight over the name?"
His last words were, "After all this, (ie.. the pain of childbirth and hanging in there for 19 & 1/2 hours) you can name her whatever you want to name her." LOL! The reason the spelling is with the My is because she was My-kala and I had worked so hard for so long to ensure she stayed in my body until she could be born safely without any complications, well more complications than we had already.
To this day, even at almost 14yo, she still loves to hear the story of how she got her name. I tell her each time it's because she was "My" "Kala."
Now I must admit I was fortunate to have a husband who cut his mom off each time she went to call her Kala because I refuse anyone to call her anything but Mykala unless it's Brantley. His mother learned rather quick that there was no arguing the point. It was Mykala or nothing so she caved in and hasn't called her Kala since she was an infant.
Stick to your guns. Let your MIL know that you chose his name for your reasons and you like it. It's his name and she will have to use it or he will not receive any cards with his middle name on it so she best get with the program.
I realize it sounds mean but still, this is YOUR child, not HER child. And, it's time she realizes it and starts respecting you and your husband's rights as parents without interference from the grandparents or the grandmother.
Best of luck and all my best wishes for a happy resolution; names are extremely important and btw, I think Xavier is a WONDERFUL name for a boy! It kind of reminds me of a formerly married couple set of friends of mine and my husband's before they broke up & got divorced and now the child is with the father for all the right reasons including the child's safety... but his name is Kirsten Yohan. I believe this is also a wonderful name for a boy. Besides, how many people truly want to enter school only to find there are dozens of boys with the name Pete, John, Jack, Ray, Roy, Joseph, Cameron, etc... Both my girls were unique in their names as there are no other students with them (at least for my oldset, there were not any in grade school but college it was different. she was tripping over other Tina's in college. I don't see this happening for her younger sister though, esp if she choses to use her middle name as her name she might use if she likes it enough & truly wants to be different. even more than she is now.
Again, all my best wishes that you can get this through the MIL's head... If DH is willing to go to bat with you over it, you have a great chance of getting through.