I encountered a situation almost mirroring yours.
The embroidery was far from the edge so that was no problem. I sashed them as they were. She was so proud of those quilts.
When I think of how Mother felt about her quilts and I look at your Mother-in-Laws squares I do have a suggestion. Measure her largest square. Find a fabric that will enhance her fabric and thread. Cut squares 1" larger on each side than her largest square. Fancy stitch her squares on top of the new fabric squares. The Fancy stitch around all 4 sides of her square will keep it from fraying with use and wash. Then you will have squares you can quilt with.
That's what I would do after seeing how much pride my mother had in the result of her quilts. She made one for each of her 6 children./Regards, Dorothy