This is a bit of advice and a whole lot of sympathy. I have a crazy MIL who has spent the better part of her life living in complete and utter delusion. She's manipulative, nasty, gossipy, and a obsessive compulsive liar who denies it all! We once had to live with her and FIL for four months and during that time, she went through our stuff when we weren't home, eavesdropped regularly at our bedroom door, got visibly upset when I went near her kitchen, watched me like a hawk every where I went in her house and scrutinized absolutely everything I did with my daughter. Then she decided I wasn't being a good enough mom so she tried to take over by feeding her, changing diapers, and I even caught her telling MY daughter that she was her mom, not me. That's right, she told my precious girl who was 1 and a half at the time that I wasn't her mom.
I tried communicating with her about all of it and she broke down crying claiming that she had turned her life upside down for us and she couldn't possibly give any more of herself to make us happy, blah, blah, blah. She basically played a very large violin for herself and denied any specific behaviors I brought up. Then to add frosting to the cake, she turned around later and told anyone who would listen that I said a bunch of mean stuff to her and made horrible demands. Yeah like, "stop referring to yourself as mom to my daughter".
So what was my husband doing this whole time? He was whispering in my ear begging me not to confront her, begging me not to say anything to upset her. He was like a scared little puppy and was more than willing to let me take the full brunt of his mother's insanity to save his own butt. I started going crazy myself and was deeply, deeply wounded by my husbands betrayal. I call it betrayal because he should have stood up for me and made his mom back off, but he and even his own dad let me be her emotional punching bag and target for all her hateful issues.
So one day I convinced my husband that we needed to leave so we just picked up and moved out, and out of town. That's when the crazy MIL went absolutely berserk and accused us of being in a cult, saying her son was P-whipped, took my husband out of her and FIL's will, and said they were going to hire a private investigator to make sure nothing happened to her "daughter".
That was four years ago. Since then we've moved a couple of times and we haven't given them our address or phone number. Also my husband finally grew a pair and set some ground rules so that our child could know her grandparents. The rules being that they can't say anything bad about me in front of her, and they refer to themselves as "grandma & grandpa" to her. This seems to work because my daughter is five and a half now and has no problem telling me if something weird or unusual was said. She sees them now about once a month for a few hours.
They haven't seen me or spoken to me in 4 years and it's been wonderful.
So that's my advice to you, separate yourself and your family from your MIL as much as you can. Don't rely on her for anything, babysitting, etc. Don't ask for anything, get caller ID so you don't have to answer when she calls. Make your husband communicate with her when absolutely necessary.