I doubt you are alone in your thoughts and feelings regarding the gossipy woman. I'm sure all others in the group are fed up with her ways too. You can only control how you interract and respond with her. Don't be a wimp....speak up and tell how rude and gossipy and condescending she is and how it ruins the gatherings...And then remind her of the cardinal rule that "If you don't have something nice to say, DON'T say it." And this mantra will have to be repeated many times...so don't go and think that once will magically work.
However, you are completely alone, and wrong, to set absurd boundaries about your future mother in law. Your adult daughter does not need ultimatums from you. She should not and should never choose a life time partner based on YOUR inability to set boundaries with this woman. I would imagine the son is fully aware of his mom's shortcomings. It is probably one of their connections...your daughter knows how you feel about her, chances are the son feels the same way.
Use this relationship as an opportunity to teach your daughter how to treat her. I'd even recommend you do a couple of therapy sessions, together, with a trained professional, to give you each tips on how to manage this woman.
But honestly L., you will lose this battle and will lose your daughter if you set such unrealistic avoidance patterns.....
BTW, is this how you treat all people you don't get along with??? You just go into avoidance pattern, shut down, stay away?