i'm siding with the DIL on this one and i'm a quilter and i know exactly what goes into making a quilt especially when its to enter a show.
i had a wonderful MIL and i took care of her and nursed for years before she died.
if the MIL is not ready to give the quilt without any strings attached she shouldn't give her the quilt.
the DIL should be allowed to treat the quilt any way she wishes and not have to worry about use because the MIL might want to put it in a show next year.
who gives a gift with stipulations on use - thats not a gift.