I've had friends like this that luckily I was able to ease out of my life, but you can't do that with your mother-in-law.
You can be thoughtful about her feelings without walking on eggshells around her. Since you can't change her, you're going to have to change your attitude starting today and make it a point to force yourself to have a more positive outlook about the visit. Try to be understanding. Has she had reason in her past to feel this way? I'll bet there some serious family history feeding her issues, and as a result she's probably hyper-sensitive to feeling like people dislike her. She probably doesn't want anyone to dislike her or talk about her behind her back because that makes her feel vulnerable.
Get her to open up and talk about her life and share with her as well. Be positive and upbeat with her. Don't go looking for something to complain about when she's visiting. If you go looking for trouble, then you'll find it. Obviously if she treats you poorly, don't look the other way and don't accept it. If she's offensive that shouldn't pass.
If she seems to get overly offended in spite of everyone's efforts then I would ignore her the first time. The next time it happens, ask her casually what's wrong, then say something like, "Oh, that's too bad you feel that way. Well, anyway _____." Lather, rinse, repeat.
We teach people how they should treat us. She's teaching people that she wants to be treated like a child? No... now you get to retrain her and teach her that you expect to be treated like an adult and that you'll treat her like an adult (and with kindness) regardless of how she behaves.