I disagree. Because...
Folks that go into a nursing home generally have a shortened life expectancy. Yes, they are having a hard time taking care of themselves outside of the nursing home, but folks deteriorate even in the NICEST nursing homes because they are taken care of, rather than having something to be responsible for.
Sad to say it, whether it's a year or 10 years...your MIL's mother is dying. We're all dying in a sense, but MIL's mother is moving toward that.
MIL asked you to make a quilt for her mother. It's a way of taking care of her elders before they pass on. From a spiritual/respect kinda place...ask your Mother in Law if she would like to choose the fabrics for her mother's quilt. Tell her you can help since you have an eye for color. I bet she will at the very least appreciate the offer.