The MIL sounds like a nightmare and she is clearly a sandwich short of a picnic. Unfortunately, she knows she has power over her son and there is not a lot you can do about that. The SIL will have noticed the difference between his controlling mother and your more reasonable and pleasant approach but his mother has him in a vicelike grip he has not been able to escape up to now and it is, thus, probable that he won't in the future.
Your approach, to avoid her as much as possible, is the right one. However, her treatment of your daughter is as outrageous as you suggest. Given the nature of the problem I think the young couple have only two options:- give the awful MIL an ultimatum to treat your DD properly or loose visiting rights or put up with the situation.
If she is as keen on the hands-on grandparenting as you say it might be that she will concede.
Prepare for a fight though. From the sound of her she will put up a hell of a fight and your SIL might chicken out and give in.