It sounds like you've been confronting her about it and she doesn't seem to care. I would either, as I said before, resort to calling the police when she takes them without permission or not let her be with them alone anymore.
Her convincing them to directly go against you and question your parenting is not healthy for your relationship with your children, husband (sine it makes him upset) or your mother-in-law.
Children can be confused enough without being pulled in different directions by authority figures. Consistency is key and it doesn't seem like your MIL is very keen on the idea.