T.,
I am a mom and a grandma so let me tell you that if my daughter or daughter-in-law walked in and told me how I was going to do things in my home I would react the same as your MIL did! And honestly, wouldn't you? If she came to your home and demanded that you did things her way, you would do them? Be realistic on that one. Your son is 3 and can enjoy many things with grandma, baking can be one of them as can cooking. You have to teach them that stoves are hot and will burn him, but to say, "don't let him in the kitchen while you cook" is a bit overboard.
I don't know if you will read all of this because of my view, but - get her some tea tree oil in case there is a burn, it helps keep the burn from blistering and will actually remove the sting from the burn. Melaleuca has these oils and they work great, I know because I used them when I burnt my hand!
In addition, keeping your children from their grandparents is cruel to your child! The love that grandparents have for their grandchildren is unconditional! By telling her that she isn't doing things your way and if she won't you won't bring the kids to her is emotional blackmail!
I would really rethink your position on this one. Sit down and talk to her and reach an agreement! My grandkids love to come and help bake cookies and cakes, it's something we have done together from the time they were little and a tradition that we cherish! Don't take away the memories that your son can build and treasure of his time with grandma just because she doesn't do things your way!
I hope that things work out well for you and your family, I grew up with no grandparents and felt I missed out on a lot. So think seriously about the consequences.
L.