This is all absolutely ludicrous.
OP you sound as if you've reached the end of your tether - good, it's been a long time coming.
The will thing is NUTS. She sounds an absolute dictator. It's her money, fine, she writes her OWN will to protect it...what normal person thinks she has the right to actually write the next will along of the person the money is going to?! Seriously worrying behaviour. Go to the solicitor and tear the damn thing up.
You really need to thrash things out a lot more with your DH. Classic sitting on the fence behaviour - he needs to see that while that plasters over the problem (i.e. keeps MIL happy) it it an extremely destructive attitude FOR YOUR MARRIAGE. It is much more damaging than he thinks. What disrespect he is showing you! - 'get it looked over if it keeps you happy' - what the fuck?! How patronising. Who in their right mind would be happy with not only having someone else DECIDE WHAT THEIR OWN WILL SAYS, but also be basically patted on the head when they make the perfectly sensible move of getting damn well rid of it. HE is acting unacceptably here. He's spending your goodwill to keep hers. Patronising you to avoid a confrontation with her. Placing her peace of mind over yours. A very dangerous move.
Secondly, the sad fact is also that the sitting on the fence and pandering attitude also simply doesn't work long-term, not unless the whole family is happy with being more and more put-upon - and there's ALWAYS an end-point to that. The pandered-to person just gets worse and worse, feels entitled to demand more and more AND MORE, just like a tantrumming toddler who never gets shown a boundary. Explain this to your DH. This is what you have here. She is taking over more and more - because so far you haven't said anything and your DH hides behind an attitude of 'indulgence' - he pretends he's the big grown up making allowances for old Mum, when the truth is he's scared to confront her. 'You're blowing things out of proportion' -you aren't (he knows it) but even if you were, who comes first, really? Her, it seems - to the detriment of the happiness of his own home.
She has acted completely unreasonably. He knows this. His response has been to crawl belly-on-the-ground to her, inviting her over etc. She has stood over him and crowed. That's the truth of it. What does that actually do? Just stores up more problems for next time she wants something which isn't the best for you and your family. She utterly disrespects and despises you all, in the real sense of the word- her response now is to continue to treat your family like shit on her shoe, to be blunt -'you're still in the wrong'. He's just making her worse.
Truth is this will end up coming to a head one day, and if it's in a few years time, after a lot more crawling from your DH, compromising from you, and even more disrespect from her, the fallout will just be worse. Worst case scenario is that this destroys the love and respect you have for your DH, and affects the good relationship your sone should have with his grandparent.
The best thing you can do is just lance the boil now. She has acted appallingly, not just by her actions, but her refusal to apologise or see that she's in the wrong. Yes I'd be blowing up at DH, saying I've had a think and yes, I'll be out for the day tomorrow, with DS, unless she apologises for the way she spoke to you all. In fact, bugger that, you're going out because you're FURIOUS at the way she spoke to you all and you don't want to see her for a while. And that you want him to make it quite clear that if she ever, ever threatens to cut contact like that again, then you'll know for sure that she doesn't love or have her grandson's best interests at heart and you will take her at her word. And make it quite, quite clear to him that you see this as a problem which is beginning to loom over your happy marriage. It won't go away and it won't sort itself. You expect him to man up and start dealing with it, properly.
Oh and make it crystal clear that you WON'T be 'looking over' any damn will, you'll be tearing it up and writing your own like every bloody normal, sentient person in the world!