Mom2,
as I read your post I was struck by the lack of boundaries your mil has. It is as if she is enmeshed in not only your life but her identity is all mixed up with your dh and dd. I think she cannot accept that her gd has these difficulties and therefore "someone must be at fault." Unfortunately, you are the punching bag. I am so sorry; how sad and uncomfortable for you. And I don't think it is entirely "thoughtless" of her that she shows dd special attention in front of ds. She may not be processing it very deeply, but she does mean harm I believe. Again, someone must be at fault, someone must pay for any anxiety she is feeling. She is protecting her ego all the time and does not sound as if she is a good observer of herself or inner life. ugh!
Well, I am sorry you are 'hooked' into this right now, but it seems your task is to get 'unhooked.' Physically as much as possible, but more importantly probably is emotionally. She is a sad and unfortunate person, and as has been said, you can do nothing about *her.* You of course have full influence over your self, and some influence over dd, ds, and wiht the loving help of your dh, you all can grow strong as a family. *Let go* of her and don't let her take up time in your thoughts; redirect attention whenever she comes to mind.
I like the *medium chill* idea. It is all so sad but better to not pretend it is not happening. Full disclosure within yourself is protective and you must listen to yourself.
Hugs, sesamejane

If I were you, I would certainly limit my time with mil, and not leave my children alone with her.