Hang on a minute here. Are you saying your MIL has removed your child's nappy in order to take pictures of their genitals?
Or, are you saying that your MIL has taken several pics of her grandchild, and in some of them your DC happened not to have a nappy on?
If it's the second, (and it sounds like it is from your OP?) then yes, YABU.
Te following is based on it being the 2nd option. If it's the first, then well you have a problem, but that's obvious!
I understand the frustration of not being listened to by ILs or parents, but I've had to learn to relax a bit and I think you need to as well, and not sweat the small stuff. And a grandparent letting a toddler run around with no nappy, is small stuff. It is probably good for them too, to have a bit of nappy-free time.
You asked for some perspective, so here is some:
"I'm horrified that my ds's privacy has been invaded. How very dare this person?"
Your MIL is not invading your DS's privacy. She is acting like a loving grandparent. You are being OTT for being "horrified" about invasion of privacy. If you were my DIL I would think you were acting like a loon and would feel a but sorry for the children and the state of the world when a grandparent taking pictures of their grandchild is seen as invasion of privacy. I would also worry about the values you were teaching them about their bodies. It's about nudity. You have a problem with it. She doesn't. She simply sees it as a picture of her grandchild. You see it as a NAKED picture of your child. The thought probably hadn't even entered her head. Having said that if you don't want her to take pictures of your DC naked, that's fine, but do try to ask her politely, and accept that she is not being unreasonable at all, it's just a difference in opinion, and refraining from taking naked pics something you are asking her to do for you as a favour, because it makes YOU feel uncomfortable not because there's anything inherently wrong with it.
"Person is older and apparently likes to 'air' baby's bottom. Ds has no nappy rash etc, never has, he's totally clear, I don't see the need. If there was a need, sure it's up to dh or I to do?"
There may not be a need, but there's no harm, and it probably is good for them. You are making a mountain out of a molehill.
"I'm really uncomfortable with this situation, expressed my anger and insisted photos are deleted, have been assured nobody else has seen them."
If I was the MIL I would think you were nuts! Not for asking them to be deleted, that's up to you, but for being angry about it.
"As I say, I don't believe there was any sinister intent, just stupidity but it's makes my skin crawl that this was done to my almost 2 year old (21 months"
Nothing bad was done to your child. Your MIL has been acting in a totally normal way. You need to understand this, and probably apologise to her for the way you spoke to her (with anger etc). If you don't want the picture to be taken, state that calmly. But you need to do some work in patching your relationship with your MIL, IMO as you being so over the top is probably putting a strain on it.