Lucy, that all sounds incredibly difficult and I think that you have been exceptionally patient. I agree that she sounds a bit 'crazy', but understand that you are put in an awkward position and it is to your credit that you have persevered.
First, it's up to your PIL if and how much they drink, but I would definitely not leave the children in their sole charge and I would schedule any get togethers for during the day, when they are sober.
Second, and probably actually the main issue, is that she still feels threatened by you and, from what you say, you haven't got to know each other properly after so long or had a proper conversation, one on one. There are some positives in that she clearly loves her DGC and you admire her in certain respects. What do the children think of her? They are getting older now and will make up their own minds.
I admire you for being strong and not giving up, but you are right that things need to be different and you clearly cannot rely on your husband to sort things out. Would it be an option to take your MIL out for lunch or something, just the two of you, and trying to have a 'heart to heart', clear the air and try to move forward. As in everything, communication is key, and you sound as though you are mature enough to want to take this route, but are unsure about your MIL's position.