The idea about giving her a choice of three or four patterns you were comfortable with sounds like a winner to me. Non quilters are kind of like small children who need help choosing what to wear. The easiest thing in that case is to give them several appropiate choices to choose from. That way both parties are happy. As for the fabric take her to a real LQS so she realizes the price of "good" fabric. The other suggestion about letting her choose just one theme fabric can save you money since you might just have fabrics already in your stash or know other sources of less expensive fabrics that will work with the pattern.
I hope your MIL really appreciates all of your time and artistry.