Your daughter was unspeakably rude, but as others have suggested, she was probably feeling hormonal. I found some parts of pregnancy a bit like having permanent PMS. My poor husband...
I personally think, handknits for babies are absolutely lovely. Mostly. I have seen some shockers, although what you made sounds beautiful.
My MIL is a demon knitter and has knitted hundreds of things for DD. We do have rather different taste. In that she has none. I bought her a lovely book of classic knitting patterns when I was pregnant, thinking they would be traditional enough for MIL, but modern enough for me. The patterns in the book were photographed all made up in beautiful pure wools, in gorgeous subdued colours, and there was a whole chapter on wool choice, which I thought MIL might read and absorb. HA! She did knit some of the patterns, but chose awful cheap acrylic wool, from her supermarket, in very saturated pastels. Vile Not to my taste.
However, I managed to express proper gratitude and photos were taken. And I was grateful. It's a fantastic thing to have people in your babies' life, who love them enough to spend the time to make them things. That is always worthy of gratitude. Your daughter will come to see that too.
I then thought that both MIL and I would prefer it if what she made were actually used and truly appreciated, so I organised a shopping expedition next time she visited and we chose some beautiful wool together. Periodically I post her more wool, and now she has made some utterly gorgeous things. I make vague suggestions as to what is needed, but always let MIL choose the pattern and what to make.
Taste is a matter of taste as the great Diana Vreeland said (I think). I am sure your daughter will soon regret being so horrible about your lovely knitting. But why not suggest a joint shopping expedition to choose wools and patterns, next time you visit. It might not be what you would choose, but if your DGC actually wears it, I'm sure that would be best all round.