Re: how should i respond...
The best solution is what CHOTI JAN has proposed, assume silence, one thing you must remember, she is there to stay, and you and your daughter will stay there as well, so it is up to you to create an environment where your husband can feel relaxed after his busy day at office.
If your MIL has some problems then, let it be, don't ever talk back, don't listen to anyone suggesting you to take a stand, you want to worry about ur daughter and your husband. Forget everything else, fighting/talking back/ taunts is not a solution for this problem, treat her with a strategy so that she can feel and share the pain you are going through.