My mother-in-law sometimes likes to comment and criticize our parenting abilities. She does it in front of our kids, which undermines our authority and Shalom Bayit, which makes the kids worse (esp on a Fri night when we eat late). My wife recently confronted her and got her to keep her opinion to herself.
You will need to confront your MIL. Not necessarily be agumentative, but stand you ground and explain your discomfort. Also explain that having guests and upsetting them is no favor to them.
She may not even think that she is displaying any abnormal emotion or speech. Nor may she be cognizant of her bad habits. I get the feeling that no one has told her to be quiet. Well, some one has to and that may be you.
She an emotional bully who is taking advantage of your politeness. You gotta draw the line, being firm while being a mentch.