I say it's up to you and your husband ONLY for naming your child. I was in similar shoes with the birth of my son last year. My father passed when I was 13. I know that my mom expected me to name my son after my dad, using his first name. Once this issue was brought up, when we had just learned we were having a boy, my husband and I agreed to keep the name that we decided on a secret. So, up until the moment our son was born, we didn't dicuss his name with ANYONE. My mom was upset and actually told me during my pregnancy that by keeping his name a secret it wasn't allowing her to develope a bond with him!!! I told her to pick a name and call him whateve she liked until he was born if she thought that would help her bond more. We did not use my dad's first name, but did use his middle name. Part of our decision was based on the fact that I have a younger, unmarried brother and one day if he has a son, he should get to use my dad's name. My mom might not have been 100% happy with my son's name, but she came to understand and accept that it was my turn to name my kids, she'd already had her turn.
Stand your ground!! This is YOUR SON, not your MIL's son.
Good luck!