Wouldn't you rather do what is best for yourself and family? The thing you can do to look good in contast to her is to not drop to her level, but to smile at her and tell her, firmly, but kindly, that you don't agree and won't accept that you deserve bad treatment from anyone, including family members. Or whatever the problem is.
My MIL spent many years trying to discredit me, trying to ruin my marriage. She was the MIL from hell. She was cruel and hateful to me, never giving me an inch. I fought back and made myself look bad when I was young. As I aged, I didn't want to fight anymore, didn't want to deal with it, so I started staying away. That enraged her even more, believe it or not. I believe that I was the person she was using as her whipping boy. If she was mad at anyone, she'd turn that anger on me, her son's wife.
When I wouldn't accept the treatment any more, she went on the offensive just horribly. But I found I just didn't care anymore. My husband didn't like her behavior, because she was trying to talk him into leaving me. So, he stayed away too, which made it even worse in that her gossip became horrible, just horrible.
She was the MIL from hell and created more bad memories for our children than she did good. None of them remember her fondly.
So, my advice. Remain cool and aloof and let her hang herself with her own behavior. Believe me, that will be far "worse" for her than if you fight back. People who are constantly brewing up fights just hate it when the object of their hatred won't fight. Drives 'em nuts.
H.S.