ToH - I think there are two separate "challenges" here. First the chocolate, whether the child is 3 months, premmie, 2 years or whatever, the children do not belong to your MIL, and therefore you have to stick up for them. What's the worst she can do, really? Threaten not to come round? Bitch about you to people you don't know? My DS's godmother was really cross and offended when I said that DS wasn't having eggs at Easter, and said "well I only got a small one because I knew you weren't giving him chocolate" . I relented, DS looked as if I'd given him nirvana in a box, and I've been rueing (sp?) the day ever since...everyday we have a "fight" about whether he can have a "special treat"...
The answer is no, it will always be no (as far as your MIL is concerned) and keeping babies out of the way might be the only way it gets through to her.
Underlying this, I suspect, is her feeling unneeded, her maternal days are over (maybe just as well, although obviously your DH came out of the experience OK). I heard a lot of this (not calling herself mummy but referring to it constantly as "our" baby) myself from my mum, and the "I never get to see my grandson" (because she chose to live 2000 miles away) etc etc. It's sad, it's overwhelming when you're dealing with children who really are children too, but it's NOT your problem.
As said already, if you don't keep setting the limits (grandparents and children, it's exhausting) you will become overrun with wired children, and petulant wilful grandparents and your life will be a living hell and constantly full of extra guilt. It is not your job to make up for another person's anxieties, real or perceived!
Hope I didn't scare you