I created a new ID for anonomity. I did not anticipate having to post again until my baby was born but some things happened last night that changed that drastically.
My DW and I have spoken at length about what she would like to happen with the birth of our first child (currently she is about 5 1/2 months). Most of our birth plan came from reading the best of threads on this site to let us know what not to do.
We already knew to expect that my SFIL would be a problem come baby time with possesive jealous behavior, but now we know for sure that my MIL will be a problem as well. Last night when we met them for dinner the first words out of my SFIL's mouth was there's MY BABY while pointing at my wife's belly. That set the tone of the rest of the evening. Every messed up thing a IL can say about a newborn was said. This is to include "what happens at paw-paw's stays at paw-paw's", "MIL can spend the first few weeks with you and just sleep on your couch and get up with the baby", and the dreaded "we know you will be tired so the baby can just come stay at our house a week or so after it is born."
Many more things were said during the evening. At one point I even asked my SFIL if he was planning on BF our newborn at which point he just laughed. It got worse when I stepped away to go to the bathroom. They started in on my wife again and at one point told her that she was forgetting that this was THEIR first grandchild to which she yelled at them that it was HER baby, and they just laughed at her. She told me that the way they said it was to imply that they were more important then she was to our upcoming child.
When we got home she was in a state of shock and anger. She just could not believe that her mother would say the things she said to her, especially after she knows that MIL moved away when she was younger due to her own mother's actions. She is at the point now where she is considering not telling them when the baby is coming 
to avoid drama. This is also because we know that SFIL will try to one up FIL over the baby.
My question is where do we where to go from here. We spoke about it and agree that a arguement is coming either way. We can either confront it now and deal with it or wait till closer to the baby coming. We are both of the mindset to do it now.
We want to sit just MIL down and confront her with all that was said and let her know her and SFIL comments were wrong and correct her expectations of what will happen when the baby comes. We cant include SFIL in the discussion because we already know he will take everything personal and as a attack on him instead of us being adults setting boundaries. He has always done this with any of MIL's children. He just loves to point out the things they do wrong (which aren't) and tries to act like he is better then me. I was also thinking of confronting my MIL by myself to try and avoid putting stress on my PG DW, but I am not sure how that would be received. I know it is supposed to be each SO deals with their own family, but my DW just last night looked at me and told me that the way she was raised and how her mother acts is "not normal." She really understands things for what they are now, but still grew up with MIL guilt trips and tantrums so her normal meter still needs adjusting. Before anyone suggests it she is already willing to do therapy to adjust it back.
If they can be normal loving GP I would not be opposed to them being involved with our child due to the fact that I have already CO my entire family for saying and doing rude things to my DW, so I would like to have some extended family in my childs life. I am not willing to have them around if all they want to do is baby grab and boundary stomp though.
So DWIL what do you think? Confront them, or just MIL? Me or both of us? I should mention that my DW loves her mother and is not at the point of a CO yet, but TO is def a opiton. Thanks.