For what it's worth...I "fixed" a baby quilt a few years ago for my sister. It wasn't this old though. She had made it for my first child in 1963 (she was 9). I had kept it through the years and decided to repair it for her first grandchild (6 yrs ago). In my case, some of the blocks had holes in them, but the quilt was otherwise in tact. I top stitched a new block on top of the torn one, and then put a new backing over the original (torn)one. Then I placed a large label on the back with the history of the quilt. The label became a family history of sorts.
It was hand quilted so I tied the new backing in order to leave the integrity of her orig. quilting. If you can't do this your mil whole quilt you could make it into a lap quilt.