Anti -
I feel for you and your wife having to go through this. It is difficult and I am kind of going through something similar with my mom.
It's difficult to know what to say, you don't want to hurt their feelings because you love them and still want to see them, but at the same time, you want to be able to tell them how you feel without it causing a split between you. Definately you should keep your daughter away from the father-in-law, because you don't want her to be around someone who is abusive in any way.
When you do talk to your MIL just explain to her that you still want her to be a part of your daughters life, but that the WTS doesn't play a part in it all. She has to realize that you don't have any plans to go back into that?!? I think sometimes they have blinders on. I could probably pierce every part of my body and tattoo the rest and dress goth, but my mom would still have "hope" that I'll return to the "truth".
How do you respond to that?