That would offend me too! I can't stand two faced people. It sounds like she was great while with you, but behind your back (and to your hubby) she thought the complete opposite about you.
I don't do well when I can't confront people if I have a problem with them. I often think along the lines of "how will they have the opportunity to change if I don't tell them about the problem". Personally it drives me CRAZY if someone has something against me and they tell someone else and not me. How is someone else going to fix the problem? That's just gossip. They should tell me so I can have the option to make changes or not.
Your MIL did just that - gossiped about you to someone else. If it were me, I would very likely confront her. If she has so many issues, why not talk them out. And, I'm not suggesting confronting her in an angry way. Confront her when you feel calmed down enough to talk rationally about things. Listen to her concerns, share your concerns, etc. But the truth is, it's YOUR home. You have the right to take care of your kids, your house, your food, etc...the way YOU guys want to.
I think it's something you should give some thought to. If you don't confront her, will it fester in you? That's how I usually am. I can't stand having that negativity in me! Of course, if she's like my MIL, it won't matter, but at least you'll have tried. My MIL is an avoider and hates talking about anything at all. But, I don't know your situation well enough to suggest what you should do...maybe see what your hubby thinks. I wouldn't want her in my house either...not when that trust is gone and when you will forever now be thinking that while she might be acting nice, she's really thinking all these horrible thoughts about you. I wouldn't want to be around someone like that.
I hope something somehow works out.