YANBU at all. This could be an innocent little slip on the part of the MIL or it could be indicative of how your MIL thinks of your children.
I have a toxic MIL who has done all sorts of tricks over the years with my dd. Yes, I know she just loves dd, but she's tried to undermine my authority, has been poisonous about me in front of dd when she was 7 (silly move...like my precious girl wouldn't report that back!) and has even slipped up and been toxic with 'her' precious baby once too.
DD now tries not to visit too often; she laughs about the fact that MIL has asked her to live with her ('like I'd do that mommy...I couldn't live anywhere without you') and so it goes on.
When your children are older they'll make their own mind up about their gramparents. Mine knows that her gramma is a little eccentric. I've never slagged her off in front of DD (though Lord knows I've been tempted to) but she doesn't believe in that rule and has slated me on numerous occasions in front of my daughter. End result? DD thinks nanny is a bit mad and respects me even more. I win! Ha, ha, ha.
Sorry...suddenly had a manic moment, but you get what I mean. And I still have the unreasonable wave of rage when she calls her 'my baby' especially as she's nearly 8, but I just bite it down...I will be the better person, I will be the better person, chants mantra repeatedly in the hope I can comply.