I think your MIL is rude. However, I think that as she isn't that close to this family member - she wants to pass on something she has made, but she doesn't want to waste money on wool and waste her time making them, hence why she is asking for them back.
I would tell her that you wanted to keep them for any future babies, and you are confused as you thought they were gifts. Ask her that in future, can she let you know as she gives you things, if they are a gift to keep, or on loan. Then change the subject.
Over the years my MIL has been a bit weird with gift giving.
One year she gave DH an annual (monthly) subscription to a gardening magazine which had the offer of choosing free seed packs every few months. After he'd opened the certificate of this gift, she ask if he could mail her the magazine after he'd finished reading it, and if he didn't want the gifts, could she have them. Gift was going to cost DH more to post to her than what the subscription cost. He wasn't interested in this subscription, so each month when they arrived, he left them in the study, unopened and he never passed them onto her.
She has given him books, wrapped up as gifts. Later on she will ask me for it back - often I will have no idea what she's talking about as I wasn't there when she gave them to him.
With my 2nd baby, she was crocheting a blanket, just like she did for my first, and consulted me on colours and showed me her progress each time I saw her. Someone else in the family then got pregnant and we never received the blanket - but I saw it in photos of the other family member with their baby.
I quickly learnt to accept my MIL was a bit 'different' in many ways.