That's not an easy situation to deal with. I know it's easier said than done, but you are going to have to set boundaries and enforce them. She apparently has big problems with boundaries. Try to remember that her problems are about her, not about you. Being raised by her, your husband probably needs to learn how to establish healthy boundaries too.

When she does things that bother you or make you uncomfortable, she is crossing your boundaries. She doesn't have the right to do that, and you need to find a way to let her know that she is crossing a boundary. You can set limits, such as a maximum number of phone calls per day and let her know and don't answer the phone (caller id?) when she exceeds it. When she talks badly about someone, you can say that you would rather not hear things like that, and refuse to listen, even walking away if necessary. Of course you don't have to answer her inappropriate questions. She almost certainly won't like it when you start setting limits, but what would you prefer? Be disliked by someone like her, or have her continue violating your boundaries?

When your husband keeps placating her out of fear, ask him what is the worst she can do, and how long can she keep it up if he refuses to give in?