My mother in law said that her son (my husband) is ...?

Kudos to you on the sarcasm! I love that line "nope, cause a dead guy can't attend family functions". Good for you for standing up to her. Here's something further, I would tell her that since she has no son, she has no grandson. I know that's a b*tch move, but she's brought it on herself. I wouldn't answer her calls until she came over to apologize, which the apology may or may not come. I'm sorry you guys have to deal with this, my mother in law is great!