Hi Sara,
Will you and your husband be living with his parents after marriage? If not........then consider yourself fortunate.......take a deep breath........be the bigger person........and forgive her because we're in the last ten days of Ramadan. Make dua to Allah to for a happy marriage and for the guidance of your MIL.
If she's behaving this way with you, chances are she'll treat her younger son's future wife in the same way. You're not insane.......you're not imagining things.........people CAN be condescending and maintain a calm voice at the same time. I'm sure you've seen it plenty of movies/dramas where women hurl catty/condescending remarks without ever raising their voices. They'll cut each other down sweetly. So don't be befuddled by your MIL's respectful tone of voice and the contradiction of her disrespectful words. Some people are loud whereas others are calm. But you can insult a person either way.
I've read your post. And YES, your MIL was being thoughtless/tactless/rude when she said that she can find prettier girls for her younger son in her own family. Such a comment reflects her arrogance......be it intentional or accidental. She always had the choice of staying quiet......or........she could have diverted the topic with a vague but decent response such as "Oh my son is still young, there's plenty of time yet in considering his marriage whomever the girl will be." Or she could have said, "Let's deal with my older son's marriage first. One thing at a time. I haven't even thought about my younger one's rishta yet." See what I mean? Your MIL DID NOT have to bring up the topic of "looks" or "beauty." IN conclusion, her comment was rude (whether it was deliberate or accidental). I would not be surprised if your MIL would feel insulted/touchy if some aunty had made the same remark about HER OWN daughter.
In our culture.....some in-laws (the guy's parents).......think that because they represent the susraal walay........that they have the power and the right to treat the bahu however they want. Such in-laws fail to realize that by showing their true colors to the their bahu........they are only degrading themselves/showing how low they can go/how insecure they can be/how they can't follow basics of Islam. In other words, apnay aap ko khud nanga kar rahain hain.
I agree with Cute Gurl's advice. Don't complain about your in-laws to your husband. IF he's close to his mom, he won't like it. Just always act like the bigger person and deflect your MIL's comments with a smile and some calm wise words. It's a shame that being the elder........she doesn't know how to behave. The next time she makes a catty indirect reference to your sister's looks............put on a smile........and calmly say........."Ammi, inshallah your son will find a great girl. Allah has created everyone different. Some of us are dark like my sister, some are fair. Some are fat, some are thin. In the end, we're all judged for our heart and personality. InshaAllah your son will get a girl who he finds compatible both physically and personality wise as well." This way, your MIL will hopefully feel ashamed of herself on the inside...if she has a conscience.
But basically.........if you won't be living with the woman after marriage........don't let her comments eat you up. Don't complain or nag about her to your husband. He can't change his mom and neither can you. A person can only change themselves. And always show YOURSELF as the bigger and calmer and more dignified person. Dont stoop to anyone's low level. IF your MIL is indeed on some agenda to insult you..........your sense of calm will frustrate her even more. Because bullies like to see their victims upset/sad/distressed. And when you remain calm.......it's your victory.