I sympathize with you. It's very painful. And your husband doesn't want to cut ties with the little family he has (since his father's family was driven away, it's Mom/Dad or nobody). What little energy he had once is now gone that he is disabled and in pain. (And let's not get started on how his mother's drama may be increasing his pain.)
You say she has twice been diagnosed as bipolar, but you don't believe it? Believe it. She is mentally ill. Yes, she seems to be able to turn it on and off, but that can easily be a function of the mental illness. My stepdaughter is bipolar, but there are triggers in the social environment that cause her to be perky and happy (excessively so), and others that send her into anger, depression and seclusion. So what these "friends" see when they come to you and defend her is the super social person that no one wants to believe is capable of terrible stuff. When your MIL is in a bad way, she turns on you and your family.
Here is the thing: if people are coming to you to tell you how wonderful she is and berate you for not being nicer (or whatever it is they do), ask yourself, "What kind of person gets involved in a family situation without knowing the whole story?" But so far you are choosing to tell them the whole story, rather than ask yourself whether you really need to be friends with people who jump to conclusions or take sides in a family situation. Sure, it's natural to want to defend yourself, but the only way to do that is to badmouth your MIL and divulge what she is like when the others aren't watching. Sadly, that's not a game you can win. Right as you may be, you can't win - because you only come off as doing what she's doing, which is criticizing someone else. All you can do - and this will take all your strength - is to summon up a backbone and say benignly, "I'm sorry you feel that way" and "I'd rather not discuss a complex family matter in a casual way, I'm sure you understand." If they persist, you have to be firm, "I'm sorry. You are entitled to your beliefs but I cannot go into something that is confidential and a private affair." Then ask about them or talk about the weather, or leave. If they persist, you can say, "If you believe all that to be true about me, I wonder why you would spend time talking to me." Then excuse yourself and leave.
Taking the high road will be better for you. It will leave them feeling there is more to the story, or it will help them understand that they are meddling just like your MIL. You have to try to believe that somewhere there are people who value you, who don't think ill of you, and who would question the motives of a MIL who badmouths her son and DIL. Then go find those people.
You are doing the right thing by keeping your child from visiting alone. I think you should also cut back your overall contacts so you aren't exposed to this woman's negativity all the time. Don't go to every single social event. Your husband is certainly able to attend alone if he so chooses. You don't have to make excuses - just "I'm unable to attend this time."
We have an estrangement from a few people in our family who are negative, arrogant, lying people with no moral compass. It's a shame in a way, but we accept that we cannot change them. We did write our wills so that our son would never be raised by them if something happened to us; we appointed good friends instead. Times together are so so stressful that we just don't do them. If someone gets married then we may have to be in the same location, but those situations are few and far between. The nastiness that they have does not affect me, though, if I don't let it. As TF says below, park in a location for easy escape, keep your keys, and don't be afraid to just say, "I need to go now." You don't have to say you are leaving because they are impossible, just that you are going.
When you think about it, there is no rule that you have to love everyone you are connected to by biology or by marriage or adoption. If you leave enough times or don't show up enough times, others will figure out that there is a problem. Meantime, you can protect your child from the horrible effects of this.
It's okay to have a backbone. If you don't have support, get a good counselor to help you sort this out and figure out ways to muddle through and how to get into some agreement and communication with your husband. Living with someone with chronic pain and a disability is hard enough, and a counselor can help there too.