Hey Tess - I haven't been on AMHD for awhile so I thought I'd pop in.  I read your comments and thought I'd respond.
First, let me provide a good working definition of what forgiveness truly is: 
Forgiveness  is the intentional and voluntary process by which a victim undergoes a  change in feelings and attitude regarding an offense, lets go of  negative emotions such as revenge, with an increased ability to wish the  offender well.  Forgiveness is different from condoning (failing to see  the action as wrong and in need of forgiveness), excusing (not holding  the offender as responsible for the action), pardoning (granted by a  representative of society, such as a judge), forgetting (removing  awareness of the offence from consciousness), and reconciliation  (restoration of a relationship).
I want to focus on 3 parts that I find compelling as it relates to the definition above:
- Letting go of revenge
- Not excusing an offense (refusing to hold the offender as responsible for the action)
- Reconciliation 
 Letting  go of revenge is hard to do when the offender is still in the process  of offending you.  It's only natural that you would viscerally respond  to her when she is in your presence because she isn't kind to you and  she stirs up strife in your family.  I wouldn't want to be around such a  person and there isn't anything wrong with feeling that way…that's  perfectly natural and appropriate.
 
Secondly, as a Christian, we  are called to be salt and light in the world.  I don't claim to fully  understand what all that entails but at least it must entail speaking  the truth to others out of love.  When your MIL says something unkind,  you are not obliged to stand there and take it.  Sometimes people like  this are put in our lives (I believe) to embolden us as people.  We need  to learn to stand up for ourselves and be truthful with people.  The  bible says that the righteous are bold as lions.  I don't think that  just because we are believers that we are as bold as lions but I think  the idea is that a righteous person has derived confidence in God that  can make us bold.  We can be bold because we believe that God is for us  and that his steadfast love for us brings all things to bear in life.   What I mean is that I need not fear others when they are unkind.  I need  not fear others judgment of me if their judgment of me is not coming  from a place of goodness.  If I am living out my life before God in an  honest manner and striving to do my best to live before him, I can have  the confidence to stand up to evil and deal with it confidently because  God has forgiven me. 
 
Thirdly, when it comes down to it,  forgiveness doesn't have to mean reconciliation.  When you deal with  your MIL, remember that she too is a sinner in need of forgiveness.  I  mean, her actions suggest that she may not know Christ.  I don't know  that, obviously, but Proverbs says this:
There are six things that the LORD hates, seven that are an abomination to him:
A false witness who breathes out lies, AND ONE WHO SOWS DISCORD AMONG BROTHERS.
I  have come across people before in life that stir up strife in  friendships and family and I have to believe that someone who can do  this as a sport is not led by the Spirit of God.  One of the fruits of  the Spirit is peace and I believe it is necessary that to be a child of  God, one should be about being peaceable with others.
 
So in  summary, this is what I would do if I were you.  The next time your MIL  says something nasty to you or about your children (in your presence),  stand your ground and tell her that she's out of line.  You have to let  her know that you are not somebody she can mess with.  She may respect  you for it in the end…or maybe not.  But at least she'll know that she  can't get away with it.  There probably aren't too many people who do  that to her so she's accustomed to saying whatever she wants because  nobody calls her out.  I think your husband will also have to have your  back and not let her get away with it either.  If he's a wishy-washy  son, you'll be fighting an uphill battle all alone.  But he shouldn't  tolerate her bad behavior either.  If you are both united, she won't  gain any foothold in undermining your family with her words.  After you  have stood your ground, you'll feel better about the situation and then  forgiveness can come because you've said your peace and then the issue  clearly is with her.  I suppose then you can pray for her and that might  make you feel better towards her as well…not that you will enjoy her  company but that you will just know that you are dealing with a sinner  who needs mercy.