Ugh- when someone is like that I think you can be firm and almost "rude" back. They don't understand anything else. I have most of my fabric sorted into two shelf units. I tell my friends that they can "borrow" from the one closet but the other is stuff I have plans in mind for and they can't have that stuff. I put all the stuff that I don't LOVE in the one closet- mostly stuff I got thrifting or on sale or whatever. Some of it was pricey but I don't care for the color or design anymore.
That works with my friends/family, though, because they share back with me. I would be frustrated in your shoes too. Some people just don't get it. :0(
I am glad that your DIL is very nice, though. That is the important part. :0)