My mother lived with her mother-in-law for 30 years. My grandmother died in June of 1983, and my father died in July of 1983. I loved my dad very much, but he was, without a doubt, a momma's boy. When he married, he brought my mother home and simply moved to a larger bedroom in the same house. This was not an uncommon situation in our small town full of Italian immigrants. My uncle and his family lived right next door, and my aunt and her family lived down the street. Every grouping of 2 or 3 houses was another extended family grouping. When I was growing up, I remember thinking that it was strange that my mom's side of the family all lived in separate houses in separate towns. It had it's advantages. I never had a babysitter who was not related to me. But it certainly was no picnic for my mother to have her mother-in-law constantly in charge of everything. That was the culture and custom. The other families on the street seemed to get along better, and I think it was because the daughters-in-law were raised knowing that they'd marry a nice Italian boy and move in with his mother. My mom was American and so the outsider. My grandmom treated her badly. My father and grandmother have been dead for 25 years, and my mom is still angry about her married years and her living situation. There was a huge strain on my parents' marriage. My father would never conceive of moving out. He used to say, "Over my dead body!" And that became a literal reality! Because my mom was angry and depressed all the time, she was not the best mother. In fact, I'll tell you that we have a very, very difficult relationship to this day.
We were fortunate to live in a very large house -- 5 bedrooms, 2 bathrooms, and even 2 kitchens. It was possible to escape the tension to a degree by going to another part of the house.
You're sharing much closer quarters. For the sake of your family, you need your own space, especially if your husband feels the same way you do. Make a plan. Prepare for it. It's your decision to make. If your MIL gets upset over it, then she'll just have to grow up and deal with it. You have your own lives and your children deserve to have a family without the stress.