S.P.
I think that if you MIL wasn't staying with you when she visited it probably wouldn't be as hard for you and your hubby. I would take a deep breath before she arrives knowing that she loves her grandchild dearly and that she will go home again. Also, tell the nanny you are the boss, not grandmom. Tell grandmom if she wakes the baby, she has to deal with the baby when he is cranky etc. Also, it is ok to take away something from you child if you don't think he/she should have it. I just try to remember when grandparents don't respect my wishes that the more people that my children have to love them, the better off they are.
It's just a tough spot and I don't envy you, but I think we all go through it to some extent.