Girl, girl, girl! I feel your struggle! I've been married for 8 years. My MIL has never cut my daughter's hair or anything like that, but my in-laws do think that they can act however they want without repercussions. It is SO frustrating. They continually cross boundaries & try to push things, & if I say anything (God forbid I could stand up for myself!) they run to my husband whining about what I have done. Funny…they don't mention how they instigate it all!
Might I add, they pretty much ignored us until our daughter was born almost 4 years ago. That’s when everything changed & the friction began. My husband’s kind of like your fiance - when his family calls griping he calls me asking, "Mom/Dad/Sister says you ___. What happened?" I keep telling him that bothers me because it comes across like he thinks I am a bad person, instead of telling them he doesn't want to discuss it & if they have any issues they can talk to me.
And YES! I do prefer my family to my inlaws!! My family acts properly around children; my inlaws are loud, crass, curse around the kids, & encourage them to do things that aren't nice. We went on a 2-week trip last fall & our parents split the time. My daughter came home telling me things from MIL's that just made me go, "Grr..." Nothing horrible, but troublesome/irritating nonetheless.
Here are some things I can tell you from my experiences. Your MIL will most likely never change, so you're going to have to figure out ways to deal with her so you don't become a doormat. With mine, I decided over a year ago that I’m going to subject myself to them as little as possible so there’s less opportunity for them to find anything to start any conflicts.
[The best thing here is that just last week my husband called me asking if I slammed the door in his nephew's face at a time when we were all home & we didn’t hear anyone even knock at the door - - it was a cut & dry case of them totally fabricating info!! I was initially upset, but it was a great opportunity for my hubby to see them in their true light, & for us to talk about how they’ve accused me of things in the past that were exaggerated, &/or not telling him that they had a part in starting it all. Vindication! ;> The best part was when they started making up stuff to try & explain why they'd said anything in the first place.]
Is your relationship with your SIL such that you could talk to her about it without her getting defensive about her mom? Or without her running to your MIL & fanning the fire? If so, I would kind of feel her out and not be accusatory but just chat & see what she thinks. You may or may not get her support. In my case, MIL & SIL are instigators and FIL is their pawn who does their bidding.
Honestly, it’s probably best if you just went to your MIL & talked directly with her. If you pull other parties into it, things can get misconstrued & it will end up making it a bigger deal. Again, I'd not accuse, just chat. Don't even ask her "Did you...", just state something like, "I noticed Janie's hair got cut the last time she stayed w/you, but from now on, please don't do anything to alter her appearance. That is something that her dad & I will take care of."
Regardless of how you go about it, more than likely she will get defensive. Try not to let that bother you (or at least don't show her that it bothers you). This is YOUR child so don’t let her try and make you feel guilty! If she tries to say that she didn't do it, don't even respond to that & repeat (nicely but firmly) that you & your fiance will take care of things like that. She's used to being the one in charge & even though she doesn't like it SHE IS NOT YOUR DAUGHTER'S PARENT!
I'd also say something to your fiance afterward. Nothing negative, because it will put him in the middle of things. Just so he can be aware of the facts in case his mom says something. Ask him to please back you up & take up for you if necessary. Some guys are really great about that but for others it’s not 2nd nature so you have to ask.
You may end up deciding that you just want to quietly back out of his family for the most part. This is what I did. My basic motto is that I won’t say anything rude to them or try to start anything (which I really don't do anyway, just be more aware of how I come across). I'm always nice & I go to family things or if they invite us over (rare), but I don't go out of my way to do anything w/them, ask them to go places, etc. When things got really bad, and they were calling me all the time trying to get me to do things with them or keep the baby, I’d say, "Oh, I have plans" whether I did or not. It sounds mean but at the time I didn't want my daughter around my SIL or her son, & anytime that MIL kept her she would call SIL.... :P
One last thing I'd say is to REALLY pick your battles. Unless it’s something that is truly a problem (like, oh, cutting your child's hair!!!), if you can act like absolutely nothing went on that works GREAT! My SIL was taking gifts up to day care...she even threw a little party for my daughter once because my hubby mentioned that she was doing good potty training (I found out when I picked her up that day)!! With all of that, I didn't say 1 word to anyone in their family about it -- not even my hubby! She was just trying to start something anyway, & wanted me to get all worked up & bring my hubby into it. My MIL called 1 time to ask me if I got what my SIL brought to day care - I said, "Oh yeah," & acted like it was no big deal at all. After that, I didn't say 1 word to anyone & they never called to ask again. After a few times of that she quit altogether! I also either took her gifts & gave them to the Goodwill. Keeping the negative energy OUT of my house!
As your little girl gets older & she makes friends at day care/school, & you meet those moms, you will get busier on that end & both of you can branch out from his family. This will help a lot, too. Sorry this is incredibly long, but I hope that it helps somehow! I'm always here if you want to talk! :)