Wow, I could talk about this for weeks, but here's the thing that stands out to me: why is your hubby talking to her? How can he not understand how much this hurts you, and regardless of who said what, isn't he supposed to be take your side? I don't have kids but... I don't get that he can't see how damaging your mum would be to them.
Then again, I don't know you or her, and I only know a tiny part of the story. Here's the only thing that works for me: ignoring the big elephant in the room and swallowing my righteous indignation. We're going to live longer than them, and we generally don't have to spend very much time with them. I focus on making the very short times we spend together as gentle, kind and fun as possible. It's a ridiculous dream because of the big elephant in the room, but there is no point - NO POINT - in getting the ugly conversations started because they never stop. They go for hours, days, weeks and years, and for the rest of your life. Talk about the kids, the neighbours, the job, the house, the mortgage, the redecorating, the vacation you took, your new exercise program, your dance lessons, the car, the tv shows you both like, the college the kids are talking about going to. Talk about the real stuff. She won't care, she won't be interested, she probably won't engage, but it's the only way to keep yourself in the same room as her so she doesn't start any mind games with the kids. It will also create a series of half-okay memories for your kids - they'll respect that you made an effort.
You can't change her, you can't make her respect you. You can only control the things you talk about. Don't talk about the witness stuff. Don't try to find nice ways to do it. It's a losing game.