MIL rant / plea for advice

When we were dating, MIL loved me, even pressured us to get married sooner, before we were ready. Pretty much all that changed the day dh and I got engaged and I opted for continueing to call her by her first name instead of calling her "mom". I think that day I officially dashed her hopes of us all moving in together and being one big, weird, happy family. (I'm not even kidding- she suggested we all move in together several times.)
Ever since then, it's been crap on top of crap from her. Once, she agreed to meet me at a store to give me something I'd forgotten at her house. She didn't show up and I waited for an hour and she didn't even bother to call. When we confronted her, she got so mad that we questioned her that she didnt speak to us for days.
After the wedding, she was really mad that we didn't let her plan part of it, so we agreed that she could plan a party for the extended family we hadn't invited. She planned a wedding reception, complete with a 3 tier cake with a cake topper, a full meal, a first dance and an elaborately decorated tent. That wasn't what upset me though, since it was a party for the family I had invited. But then we found out 3 days before that she had invited everyone we had invited plus some... There were many more people at her party than my wedding. It looked like to my family that she didn't like my reception (which she made very clear) so she replaced it. My reception was small and simple so it seemed like it was a small party at the wedding and her's was my actual reception. We waited until after the party and brought it up to her that it hurt my feelings. She wouldn't even listen, just hung up the phone. The next thing we heard (and the last thing for 3 months) was from his grandmother that we were no longer part of the family. The only way the fight ended were these terms presented to me by my MIL: I had to apologize and agree to never question her again. (her exact words were I needed to let dh hug me and give my insecurities to Jesus and not talk to her about them. I'm not even a little bit kidding, that's a direct quote.) I agreed for dh's sake, just glad it was over.
But of course it wasn't as simple as that. We've heard several times from several people that MIL trashes me relentlessly as soon as I leave, even in front of extended family. She even told my sister in law to be the entire story, spinning it that she did nothing wrong and I was inconsiderate and tore the family apart.
At the family gathering on Sunday, they decided to take a picture of the family. They lined everyone up except me. Dh pointed that out and they said "let's take this one first". Once they took that one, they told everyone they were done. Dh and I felt slapped in the face. Then when they posted it on fb, they tagged me in it! I seriously considered removing the tag and commenting that I wasn't in the picture!
Dh and I have decided to not say anything. We have decided that MIL won't be allowed to be around our kids unless one of us is present. It will be easy when they're babies bcuz I'm planning to be a sahm and breast feed- if I have to leave them, I'll leave them with my mom and she can just think I never leave them. When they get older, it'll be harder. We already know she trashes me when I'm not around and we don't want her do that to our kids.
What do you think of our current course of action? What would you do in my shoes?