Your mother in law sounds unwell. If she has been acting this way since your husband's youth, his first wife surely knows about it. If he or the two of you are able to speak with his ex-wife (not sure how your relationship is with her) you might try to come to a course of action that has the least impact on the child. I agree that your ex-husband should minimize contact with his mother, but on the other hand you do not want her going to court and fooling anyone into allowing her to take the girl for unsupervised visits. If possible you and your husband and his ex-wife should all sit down with MIL and tell her the abusive behavior is to stop; until you all are sure that she is able to control herself, she will be able to see the child only in your presence (or ex-wive's) and if and when she acts up, the visit will be immediately terminated, by calling the police if necessary.

Of course, you mother in law needs to see a doctor. I imagine that has been suggested to her. It would be the compassionate thing to do for your husband to suggest it to her again, and offer to drive her to the doctor. She'll likely refuse. You might also have your husband call your local social services office, explain the situation and see what they suggest.