Wow, what a hard situation. Yes, it should bother you, and I think your husband must be understanding of this. However, I guess I think you need to pick your battles. For the most part, it sounds like she is toatally in love with your daughter, and the reality is, she cannot ever take your place. And that's the kicker, she is always going to be jealous of you, because it's NOT her baby. Even her son is not really hers anymore!
But as a mom of a 5 year old, and thus 5 years of MIL/Nana issues, I suggest you deal with some of these issues as they arise. Otherwise, you may find yourself blowing up suddenly in a few years which really isn't fair to everyone.
You don't mention if your husband is bothered by any of this. Regardless of whether he is or not, I don't feel like he is "in the middle" - he should be on your side. I think you need to sit down and calmly explain how you feel and how your MIL makes you feel. Tell him that you don't want to hinder the relationship she has with your daughter but that your feelings are hurt and you feel like he needs to intercede. Maybe, have him read some of these responses you get on Mamasource.
Clearly, if you felt closer to her, you should say something, but I do believe it is his job to stand up for you and your feelings and put your relationship with your daughter ahead of his mom's. You and he need to compromise on what is acceptable and not acceptable. Then there is no quesitons when situations arise, since you have already worked it out.
For example, buying stuff for her house for the baby seems kind and helpful. Even buying that card seems like a nice gesture to her son, looking at it from an objective point of view (alkthough I totally get how you felt). However, decisions about sleeping, eating, holding, types of stories and movies she sees, discipline, etc. Those are clearly child rearing decisions in your ball park. What I see is that you are going ot have a hard time when she babysits or you go to the playgronund or you hit the terrible twos. There are certain thinkgs that you and your husband need to agree about, that if a line is crossed, then something is said.
I think your husband needs to lay down the law with her - he needs to be kind and appreciative, while not being wishy-washy. And you hneed to come up with some stock answers. If she says something negative to you, like "Don't burp the baby that way, it's better this way" What do you say? You need to come up with a response that will work without being aggressive. Like "I don't mind if you are more comfortable burping her that way, but this works really well for me." Or if it's non-negotiable, "Oh, I know that works really well for some babies. Did it work well for <your husband>? But our baby really does better like this so please do it this way."
And maybe in some cases you can talk to her. I had a falling out with my MIL once - she laid into me inappropriately - and a friend convicnced me to say something to her. I basicaly told her how much she hurt my feelings and I didn't think her criticism was fair, and I would hope she thought better of me. I was shocked at how she backed down. I don't know if she agreeed with me - I'm sure she thought I was being too sensitive - but she laid off. And I felt a ton better. YOur MIL might feel the ssame way - she might think you are oversensitive, but she may still feel bad if she though she hurt your feelings.
Tell your husband where YOU are willing to compromise but make it clear where SHE needs to also. For instance, one thing tha thas always bothered me is that we try to be reasonable in the number of gifts we get my daughter for Christmas, Easter, birthday. We buy one big gift and a few small. My mom shows up wiht bags and bags and I feel like she outshines us. She also showws up with gifts all the time when she comes over and brings sweets and desserts. The compromise is this. I don't fuss over the holidays, but I have asked her to save presents for those times and give in-between gifts infrequently. I put my foot down on the sweets and said if she wants to take my daughter for ice cream once a month that's ok.
The issue is totally different with my MIL, she is overbearing in that she thinks our daughter has too much stuff and is too priviledged. SHE gives one small gift at Christmas and and writes us a check for her birthday. I appreciate her practicality, but she is also very distanct and hands off. She never even changed a diaper for my first child.
So, thanks for letting me vent :) I guess we all have our issues. Basically, your husband and you need to unite on this. Even if he doesn't agree with you or if he prefers not to deal with it, he needs to stand up for you within reason. Agree on some ground rules and pick your battles, but you nboth need to take soem responsibility for following through.