You are not unreasonable here and she has also said vile things about you already.
Thought you came from a family that is emotionally healthy hence your conflict as well. However, you are already seeing his mother is a completely different kettle of fish and I think your lives with regards to her will become a lot harder when your child is born. You simply cannot apply the "normal" rules of familial relations to such dysfunctional people.
It is not your fault she is this way and her husband is her own enabler in this overall dysfunction. He is just as bad as she is because he is a bystander and has failed to protect his now adult son from her.
Bearing in mind too what she has already said, I would completely limit all contact and have as little to do with her as possible as of now. She will not change; all you can do is change how you react to her. Your own boundaries re her to date now need to be reset and raised an awful lot higher than they already are.
Your DH is in what is known as FOG with regards to his mother; fear, obligation and guilt and perhaps does not think she is all that bad really. But she really is.
I would suggest you read "Toxic Inlaws" written by Susan Forward so you can further understand the dynamics of what is really going on here. This is all about power and control really; she wants absolute over you and expects the two of you to roll over.
If she is this awful to you now, it will get worse when your child is born. I would keep your child away from these people because she will start on you both via your child given any time and opportunity.
Some people really should not be allowed any access to their grandchildren; these two should not have access. If she cannot behave decently she gets to see none of you.
This following excerpt is for you:-
A percentage of the general population is dysfunctional and/or abusive. That percentage, like everyone else, has children. Then those children grow and have children of their own. The not-so-loving grandparents expect to have a relationship with their grandchildren. The only problem is, they’re not good grandparents.
Many adult children of toxic parents feel torn between their parents’ (and society’s) expectation that grandparents will have access to their grandkids, and their own unfortunate first hand knowledge that their parents are emotionally/physically/sexually abusive, or just plain too difficult to have any kind of healthy relationship with.
The children’s parents may allow the grandparents to begin a relationship with their children, hoping that things will be different this time, that their parents have really changed, and that their children will be emotionally and physically safer than they themselves were.
Unfortunately, this is rarely the case, because most abusive people have mental disorders of one kind or another, and many of these disorders are lifelong and not highly treatable. (Others are lifelong and treatable; however, many people never seek the necessary help.)
The well-intentioned parent ends up feeling mortified for having done more harm than good by hoping things would somehow be different — instead of having a child who simply never knew their grandparents and who was never mistreated, they have an abused child who is now also being torn apart by the grief involved in having to sever a lifelong relationship with the unhealthy people they are very attached to.
Do not be that well intentioned parent!.
(for your DH specifically)
If your parents were not good parents and you are considering whether or not to allow a relationship with your children, consider the following factors, as well as others, before deciding:
•Have they fully addressed their issues in SKILLED long-term therapy? (A few weeks or months is nowhere near adequate if your parents regularly mistreated you).
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•Have they been treated for all the root causes of their dysfunction or abuse?
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•Have they sincerely apologized and made amends for the hurtful things they did? Not just said, “I’m sorry”, but really talked it all through with you over many hours’ time?
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•Are they very different people to you from the ones you remember?
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•Do you currently have a healthy, functional and stable relationship with them?
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•Do they respect your choices and boundaries as a parent? Do they follow your requests about how you want your children to be treated and to behave?
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•Would you recommend your parents to your best friend as babysitters without any hesitation or worry, and feel comfortable giving your word that they’d never harm your friend’s child, without any doubt?
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•Have you worked through all of your feelings about the mistreatment you experienced through your parents?
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These are just a few of the important questions to answer. The best plan is to work through the matter with a therapist of your own, who has no bias toward trying to “keep families together” despite the presence of mistreatment.
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If you are “no contact” with your parents, it is important to keep in mind that if they are too toxic for you, they are FAR too toxic for your vulnerable and defenseless children.
Grandparents have no automatic rights of access to their grandchildren.