If she interested in the newer machine...get that. Let her keep the old one (unless space is an issue) and encourage her to thank her MIL for getting her interested in sewing. Of course, before I'd do that, I'd talk with her to make sure she wants one, but she probably does.
I think that MIL do not get the right to tell people, even DIL that they keep their gifts and never get rid of them. My DS had this problem constantly--her MIL was always getting upset with her if she got rid of anything that she gave her. It made my sis's life really hard at times, as she needed to clear out once in a while!
We've had this discussion about gifts and quilts many many times. If it is a gift, she is free to do with it what she wants, including getting rid of it.
However, I'd encourage her to keep it as a backup. A woman needs more than one machine!
