My parents, sister and I all refer to my nephew as 'our baby', 'our little boy' etc. It's just a sly way of saying "you may be the parent but..." Thesnobbymiddleclassone, this may have been the case with your MIL, but I can promise you, with us, it's not that at all. It's just that, well, we all adore him and to us he is our baby. We all know he's not our actual baby. We know who his parents are, we know who gave birth to him. I guess it's how we express the love and closeness we feel for him.
My sister and her husband have no problem with it at all, in fact they love it. I know this for sure as I actually asked my sister after reading a similar thread on here. They're just happy that their son is so loved by so many people.
All that being said, I suppose it could be harder to stomach if it's being said by someone who regularly oversteps boundaries. We all very much respect the fact that his parents are his parents, we have always abided by their rules, they are the parents, they are in charge. If calling him 'my baby' bothered them, I absolutely wouldn't do it. I do think though that in most cases, it comes from a place of love, rather than seeking to undermine the parents. As someone who grew up with grandparents, aunts and uncles who loved us, cherished us, and treated us as their own, I can testify that this is an amazing thing. I counted my Nana and Granda as two of my very best friends, and it was utterly wonderful to know we had this loving, supportive extended family who were always there for us. It takes a village, and we had a hell of a village. I so want this for my nephew. He's the light of my life. Luckily my sister and her husband want this for their son too, so we're all on the same page.
So I guess that was a rather long-winded way of saying that it probably depends on the situation. Only you know if it's being said with the intention of undermining your role as the parent, and if there's some back story. However I really believe that far more often than not, it's just said because the person genuinely loves the child. Surely this can only be a good thing?