Some people can't see beyond their own noses; even when they're giving you a gift, they're thinking about themselves. They're also impossible to talk to, and no matter how much you point out what's happening, they will not see it, so you might have to call it quits.
Obviously, the mother-in-law from this story isn't helping anyone by throwing this baby shower. If she were paying for it herself, it might be justified to bring her friends along, but she is not even doing that. She expects the couple expecting the baby to pay for everything her guests eat, and I wonder: where does celebrating the new-coming baby come in?
At any rate, the mother-in-law is only relieving her sons-in-law from the baby showers' organisation, and nothing else. But even though that is a little bit helpful, what's the point of celebrating your baby's arrival with strangers?
I think these types of personalities, like the mother-in-law's, should be kept at a safe distance and straight up lied to. I know it might sound problematic, but I think the only way to deal with people like that is to play along, pretend you're super thankful they want to throw your baby shower, and kindly reject the offer, giving a fake excuse.
I see no point in trying to talk some sense into people like this. It's just not going to happen. Might as well keep the peace, lie your way out, save money by not throwing the baby shower, and rest for the next couple of weeks.
Do you think I'm overreacting? Is this a boundary issue or an honest mistake her mother-in-law made? Does she want to collaborate, or is she being plainly selfish?