Scuttling upstairs in your own home post c-section (or at all!) - NO! If they do not like to see you bf, THEY can eff off upstairs. YOUR home, YOUR choice.
If she is racist - call her on it every time. ASK her WHY she is making racist comments. SAY to your DC's that those comments are racist, and being racist is horrible and illegal.
If she makes comments about you (WTF?!) - Call her on it EVERY TIME. Ask her if she meant to be do rude and hurtful.
DON'T stay at their house. Book a hotel, at minimum. Personally I wouldn't waste my money booking a hotel unless she could be civil towards me, and behave acceptably (no racist comments while I was there, and no comments about me) whilst I am there.
Of she makes those sort of comments, leave. Tell your DH that you will NOT put up with being spoken to like that, or having to listen to racist comments, and explain that if it happens, you WILL be leaving. As will the children. He can choose whether to come or not.
I have had a MIL like yours. And a DH too soft to stick up for me. So I made him.
I would NOT be allowing the second visit money to be used for HIS patents as well as the first that they are using for a shopping trip. Bollox to that. One for his parents, one for yours. Simple as.
Make arrangements for the second payment to be processed for YOUR parents. If his parents ask later on, it will be tough shit.
As for them coming when you have the baby? NO! Not if they won't be polite, respectful, and keep their comments about bf and their racist comments and their derogatory comments about you to themselves.
If they say anything out of order, ask them to leave.
You do NOT have to put up with behaviour like this in your own home from ANYONE. Not even if they happen to be your DH's parents.
As he is currently unable to stick up for you, because of his conditioning from his childhood, then you HAVE to stick up for yourself.
He won't like it. Because HE will then get the histrionics from his mother. He needs to learn that YOU will NOT put up with being treated like this, and then he will slowly learn that it is NOT acceptable for ANYONE to treat you this way.
And if he doesn't, that STILL doesn't mean that you have to put up with it.
And it is incredibly damaging for your DC's to be around someone who is out and out nasty to their Mother. What sort of example is it setting to your DC if they see that Granny is allowed to be rude and nasty to their Mum without being pulled up on it? Sooner or later, your DC will be thinking that they can be rude and nasty to you without being pulled up on it?
Ditto for racism.
I would NOT be allowing my DC's to spend time with ANYONE who is rude towards and about me, racist etc. without being there - therefore if the MIL has made it so that I cannot be in her presence, then she has also made it so that the DC's can't be in her presence. Until she can behave appropriately.
As soon as she can behave appropriately and respectfully, I would build bridges, but not until that point.
OP. You do NOT have to 'put up' with behaviour like this from anyone. NOT EVEN your PIL.
If your DH is unhappy with that, ask him what he would do if YOUR parents were acting like that. What he would expect YOU to do, too. Or if it was one of his work colleagues. Or one of your friends acting like that around him...
Your DH needs to realise that this is an unwinnable situation. He absolutely CANNOT make both you AND his Mother happy whilst she continues to behave like this. He just wants everyone to be happy. He needs to realise that you CANNOT AND SHOULD NOT be happy with somebody behaving like this towards you and around you and your DC's.
So either his Mother has to change and act acceptably, OR you have to change and stop accepting being treated like this OR you have to stop contact until she behaves acceptably.
Either way, SOMEONE is going to be unhappy. This is the point where he needs to grow the fuck up and realise that he us not his Mummy's little boy any more, he is a Husband and a Father, and those roles should come first in his life now.
So he should be standing up for, and making happy his DC's first. Then his wife. THEN after he has endured his DC's and wife are happy, he should make his Mother happy last.
I have 3 DS's. If I made ANY of their wives (in the future) feel as uncomfortable around me as you do around their MIL (me), I would consider that I was failing in that role...
She's a witch. I now have a very relaxed relationship with my (now) ex-MIL. It took until I had been refusing to put up with her shit for a full 12 years first though.
Now I trust her around my DC's as much as I trust myself. But it took 12 years of nuttiness like you describe for us to get to that point!
I just called her out EACH AND EVERY TIME she behaved unacceptably. And didn't back down.
YES, it caused my (now) Ex pain. But now he is glad of it, because now we get on fine, and his Mother has sorted herself the fuck out, and is now no longer like that generally. It was just that nobody had actually stood up to her before and said "No, I will NOT tolerate you behaving like this".
I now don't give a shot whether she is racist and disrespectful 99% of the time - because she NEVER does it around me OR my DC's now.