Keys, you and I are going to have to agree to disagree on this one.
I see mistakes on both sides and Witty the only one admitting her mistakes and trying to make it right. I also don't see her as trying to control how the MIL lives her life, only expecting that she be treated with respect and consideration unlike what has happened in the past. This I don't think is unreasonable. My own M treated my DH horribly. I adore him and intend to be with him for the rest of my life. I won't tolerate anyone, not even my M treating him badly. This is one of many reasons I cut her off. If you treat your child's spouse badly, there will be consequences. Knowing this, MIL choses her own fate.
Red, you are triangulating, but that isn't always a bad thing. Sometimes if you cannot avoid dealing with a toxic person, letting another person who is already involved be the point man is not a bad thing. You are not using your son to create make yourself right, you are simply doing the best you can in a bad situation to keep the peace. However, in this case the MIL has brought in two people who had nothing to do with the situation who heard only her side of the story then refused to hear the other side, and made judgements against Witty. MIL is essentially using SIL and BIL as her bullies against Witty and her DH. If SIL and BIL had refused to become involved, I would bet that MIL would be more willing to settle things more quickly. Instead, she has made it into an us against them thing, and even if she and Witty are able to move past things, she has poisoned any relationship that Witty might have been able to create with SIL and BIL.
I learned not to do this with my M early on in my first M. I would have a fight with my then H, and I would run crying to Mommy. Mommy would get mad for me, and tell me I was right. Then, xH and I would talk, I would find out I had overreacted or there was more to the story or maybe I was in the right and he would apologize. We would work it out and be happy as clams, however, M would still be mad and would stay mad for a long time. She never liked him from the beginning, and over time her opinion of him got worse and worse because of how he was "abusing" me. I stopped doing it when I realized what was happening, but the damage was done.
The question about the gifts, is why are you giving them? Are you giving them to acknowledge a child on his or her special day or are you giving them so you can get praise and warm fuzzies? I don't know if this GM is a good person or not, but punishing a child for her P's behavior is an awful thing to do. The child has nothing to do with it. Express your hurt to the Ps, punish them all you want, but leave the child out of it.