Agreed that nappy rash is horrible (DS has really sensitive skin - eczema and keratosis pilaris) so he used to get it nastily as well. It's really painful and definitely not to be dismissed, and I understand that that's an issue. But it won't affect DD's longterm health, and it's likely that the MIL just doesn't know gel filled nappies aren't a miracle of modern technology that mean they don't need changing until they poo - a lot of the older generation, used to terry ones, think that until educated differently. So getting a child used to sweet drinks instead of water/milk is more serious, IMO, because oral hygiene won't alter a palate that gets used to those. I have a sweet tooth yet still hate sugary drinks, because we never got them, and I am inordinately grateful for it now. Kids raised by my aunt, who had them all the time, inhale diet coke as adults. I definitely think that encouraging that is more serious, because nappies won't be an issue in another year and the MIL will shift on that one if explained, almost certainly.
She won't think there is a positive to nappy rash. She does the soft drinks.
OP from all you've said your MIL adores your DD and is otherwise great with her so if you gently explain about the nappies needing to be changed as soon as they are even a tiny little bit squidgy between the legs, before they get swollen (that's how I explained it to my Mum!) she should go with that. Like I say, her generation are so used to amazing technological advances since they had kids that they seem to think nappies are amongst them! And a dentist may be useful on the sweet drinks front. Couldn't agree more with you on that one. It isn't just oral hygiene - it's a lifetime's diet. Kids given sweet drinks young will end up preferring them to water/milk, IMO. I don't think people take sugar intake seriously enough - salt and fat, yes, sugar, no.
Finally, ignore the cretins on here. AIBU is treated by some as a free reign opportunity to be spiteful. IMO it's their own personal inadequacies being so publicly displayed, so I really wouldn't lose sleep over it. In future if you want support or help, I'd post on either Relationships or Parenting, where people are of a mindset to try to help. AINBU is for frivolous stuff really - if you care, go to a legitimate help area.