Yabu
You sound so entitled.
Although you state you're taking the comments on board, you've repeatedly mentioned that she is wealthy. Which indicates you're not really taking the comments on board.
You should perhaps let this go and bring your DD up to work hard for the things she wants in life. It may work in her favour in the long run.
Paying her own rent and bills will probably equip her with good financial skills she will need in life. Whereas your niece may not have the same understanding once she comes out of uni.
It may seem unfair because you've taken it personally and you're embroiled in this (understandable) but on the outside it just seems to make sense to hand the flat to your niece whilst she studies in the area where the flat is located.
The fact that your mil will lose money in rent shouldn't bother you if it doesn't bother the person who's losing the rent. Financial decisions regarding her own money shouldn't be of your concern. It's her money.
You should perhaps focus on how you can help your daughter? And stop thinking about how OTHER PEOPLE SHOULD help your daughter.
Your daughter is your responsibility.
Trying not to sound harsh - we are in a similar position where by niece gets more than our kids but our understanding is that mil should be able to choose how she spends her money. Also we understand that she is a good grandma to our kids and they adore her. She is fun and loving.
To start a war of words over money will in effect ruin the relationship. The relationship is far more important than the money aspect.
We provide for our kids and expect nothing from others. Anything they do get is a nice surprise.
And believe me I do understand . When one drops 1k on one grandchild and £20 on another it seems unfair. But the kids don't have an understanding of money. They enjoy their toys and more importantly the company.
Tickles and a game of boo lasts hours and they talk about it for days. Toys don't get the same attention.
Hopefully you see what I'm trying to get at.