Omg OP you are NOT being unreasonable.
Your Mil is NOT being kind or a good, enthusiastic granny. She is being selfish and rude.
You are your child's advocate until they can speak up for themselves. Of course no one needs to kiss your child's on the lips! (Cold sores can kill). Neither do they need to undress and bathe your child because they want., your child is not a toy. It would be ridiculous to think that an adult who won't take no for an answer from an adult (without crying etc) is going to respect a child's boundaries or body autonomy.
I cannot understand the PP's that think it's good or safe to teach your child that someone who disrespects parents for their own selfish wants is a safe person. So what happens when your child says no to grandma? Grandma cries, complains, cajoles till she gets that lip kiss, cuddle, naked bath time, or whatever grandma wants. What happens when disrespect turns to "it'll be our secret don't tell mum" etc..... yeah that's a great way for kids to learn someone else's feelings/wants are more important than their own needs etc.a great way to undermine the parents and mess with a kids head.
Stick to your guns and plans. strict boundaries, consequences when they get broken. Protect YOUR child.
To the PP's saying "well she raised kids and they turned out fine!" Yeah....no.
My MIL birthed a son who survived to adulthood despite her drunken, racist, vile, careless ways. In no way does his surviving to adulthood qualify her as a good person let alone a potential baby sitter.
Your MIL raised a man child who won't say no, who thinks that out of 7 days (were 5 of them are spent working,) she deserves one to do as she pleases? Once a week is overkill, once a month is more reasonable. What happens when kid wants to go to friends/ sports/ hobbies etc? What happens when YOU want family time etc?
Please trust yourself. You're not wrong.