G.T.
Honestly you have to not consider the water heater as a Christmas present. Me and my husband are having to do a lot of extra stuff for my mother lately because she's become recently widowed and disabled. The fact that I bought her a walker, a push cart, and many other things here recently does not eliminate her from receiving a Christmas present.
MIL's ARE curious about how their children are living, I call my mother in law every couple of weeks just to chat with her because she LOVES to hear what is going on in her sons life and how our kids are doing. I have to get in the "mood" to call her but I always feel better afterwards and she loves it and thinks I'm the greatest daughter in law ever.
She is your husbands mom. You need to stop thinking that you are competing with her or that she wants to snoop. If you make her a part of your life instead of making her feel shut out all of the time you will both get along better. Not having MIL stress is a very good thing.
My hubby gets a little tweeked every now and then because my mom has become so "needy" of late. It bothers me too that we have to spend more time with her than we used to. BUT, they are our parents and one day YOU will be a MIL as well and I'm a true believer in what goes around comes around. Don't set yourself up for a disaster.
It's a new year in just a few more weeks. Resolve to be more tolerant of your hubbys mom. You clearly hit a raw nerve with this Christmas present thing, your hub loves his mother and doesnt want to hurt her feelings.... thats a good thing. He loves his mom, and he will teach his sons to take care of THEIR mom too.