Both letters are jaw-dropping in their own way. But to focus on the less-traumatic yarn issue:
Beyond the six months of hard work and planning that went into that coverlet, there's the fact that the DIL
sacrificed the opportunity to buy things for herself. The whole point of money is that it is fungible.
There's absolutely no difference, economically speaking, between what DIL did versus DIL spending the gift card on things to make for herself or others, and then spending money out of pocket to buy the yarn for MIL's present. It comes out exactly the same either way.
The elegant reciprocity of DIL using the gift card to underwrite a lavish gift for MIL seems to me like a beautiful symmetry of familial sharing. When families are working together for everyone's mutual benefit, it's not about "tit for tat:" if I give you more then I have less, so you owe me. No, it's that we're all putting our love and affection and gifting into a mutual "pot", and the more you or I put in the more we all have. That's the difference between family and business, or dealing with strangers.
Besides that, there's the emotional investment of handmaking something for someone. To spend six months working on that coverlet means that she spent long hours thinking about MIL and FIL, hoping to please them, preparing something warm and cozy and beautiful for their enjoyment and comfort. That's a lot of love and affection!
For MIL to reject that affection and accuse DIL of being stingy is shocking and must have been very hurtful. Stingy? She doesn't know what the word means! For her to go further and insult DIL's mother and her upbringing? !!!!!
I mean, you don't like me or you don't like what I did? Fine, go stew in it. But don't you dare bring my mother into this. That's just apallingly rude and uncalled-for.
No wonder DIL has gone cold. To work her fingers to the bone for six months only to be met with that kind of nastiness and disdain? There's no pleasing that woman, and the only sensible thing to do is stop trying and keep her at arm's length for the sake of civility. I can only assume her husband has given up on trying to set her straight over the years, and settled on "just drop it" as the best he can hope for.