This is definitely one of those situations that we all hate to deal with. Let me say this about the phone situation, we have lived with our daughter and their 4 kids while huband was in Iraq and the easy solution to 1 phone line is Distinct Calling, your mother-in-law would have her own ring on the phone, it is approximately $4 for this service, but it is nice to not have to answer the phone if it is for my daughter. You can set up mailboxes with voicemail offered by the phone company as well.
As far as her not helping pay for anything, you and your husband need to sit down and talk with her before your frustration gets to the point of resentment. Do not be hostile, just simply do your homework on what it would cost her to live in a senior apartment including food, laundry service and toiletries. Let he know that you appreciate her contribution when you purchased the house, however, the expenses did not stop then and if she could contribute some it would be very helpful to the budget. Also, if she needs you to do things for her that is one thing, but, the proof is out there that the more seniors stay active the better for them.
You didn't say if your mother-in-law has any friends of her own? If not get her involved in the local senior center where there are activities for the elderly and this will give you a break as well. Many senior centers offer lunch at a very minimal cost, so check into that for your sanity. It is definitely a hard situation because many times what we forget is that just because they live in our home, they feel many times that we are trying to control them, so they do what they can to make chaos for us! This is definitely not a healthy situation.
As far as the bathroom being decorated in ducks, let her have her own decorations in her bathroom and her bedroom. Ask her for advice on things! Sometimes when our parents reach this age they feel they are no longer needed. Include her in things that need done for the house. It doesn't mean you have to take all her advice, but get her input! You might find she feels less like the guest and more like a part of the household. That is not to say you don't make her a part, but sometimes when we think we are including them they feel left out! They no longer have their own home, they feel like a guest. Let her know she is not a guest, but a member of the household and her contribution to keeping things nice would be appreciated.
I have been down this road and it is hard to do for sure! We tried to have my mother-in-law live with us, but there was no way, she is a person who lives with stress in her life and thrives on it! I do not want to live in a home where I feel uncomfortable and refuse to fight with someone every day! This has been her entire life, she was married 9 times and each husband was in some way abusive! Her daughter who is my age has been abusive to her mom. I refuse to become this person! Look at your mother-in-laws life in the past, what was it like? It actually took me sitting down with one of her brothers and his wife before I truly figured out that this is how she likes to live and she is miserable if there isn't some type of stress in her life. My husband and I decided for the sake of our marriage that it was not going to work and when we told her so she was furious and hostile. Now she lives with her daughter and her husband, her daughter sadly is like her mom, so they fight a LOT! Oh and my mother-in-law is 85, she turns 86 in March. Some things we cannot change, even though we want to.