I agree with Rebecca VLQ. MIL is lonely and just doesn't know it or isn't willing to admit it yet. Maybe the useless stuff would stop or be limited if you had specific times or days you and/or your hubby did stuff with her, even it was seemingly boring and mundane.
AS for the fabric...absolutely have her help pick out the fabric and buy what the pattern says. No harm in you getting a few extra scraps out of the deal. After all you are doing a lot of work and spending alot of time.
Good luck and let us see what the final quilt. I'm sure it will be lovely and appreciated.