It's been several weeks now since hubby 'had words' with his mother and told her that he was very angry she was telling lies about me behind my back.  And that he expected her to apologise.  

SILENCE

She's been phoning his mobile and every time he asks her to apologise and she does her 'I can't remember what I'm supposed to have done wrong' act.  So he reminds her again and she promises to apologise.

SILENCE

I've just found out that mil has been bitching to other members of the family that I've been preventing her from seeing her son.  I haven't ALLOWED my husband to see his beloved mother.  So I rang her up and said: "You know this isn't true.  The reason my hubby hasn't been seeing you is because he's upset at you lying about me.  Which you're still doing".

MIL bursts into tears.  "Oh I'm so old and you're being so mean to me!"  So I politely say that I'm not my husband's keeper and if he wants to see her it's up to him and put the phone down.

It doesn't bother me that much.  She's making such a twat of herself over this.  But now she's become so enmeshed in her own 'I'm a Victim' complex that she'd rather live like this, festering in her own self-righteousness.

How did you "find out" that your mil was bitching about you to other members of the family?

Lets say she was bitching about you to her daughter, or one of her sons. Thats perfectly in her right. I don't know how your family works, but for instance, my sister and I frequently have little tiffs. Not big enough to confront one another about, but certainly something we might vent about to a trusted family member- like our favorite aunt. My aunt exercises *discretion* and would NEVER tell my sister what I have said, or vice versa. And while on the phone, my aunt knows she can turn around and vent about her son to me, because I will also use discretion. Everyone needs to "vent" and its not always gossiping. Your mil has a right to work through her feelings the way she wants, and shame on the people who betray her by gossiping about what she says and stirring up trouble. And if she is making passive aggressive attempts to relay information to you indirectly to avoid accountability? Then even MORE shame on the person repeating these things because they are helping her along!!! In other words, there is NO good reason for repeating gossip, and it needs to stop.

You need to tell who ever is spreading gossip back and forth that you don't want second hand conversations between your mil and *anyone* relayed to you. Anything she needs to say to you and your husband should be said to you directly- from her. My inlaws did this to me for years, and I finally realized they were ALL stirring the pot of problems between the mil, fil and us by constantly playing "he said, she said" with us. And the funny part is, when I told my sil I didn't want to hear any more negative things about her family, she got mad and hasn't spoken to me since. Hmpfh!

I do in part agree with TwinkleToes.  The person telling you what she is saying about you is probably doing the same to you behind your back.  If this person is talking about others behind their backs, what is the likely hood of this person doing the same to you?  
       The part where I disagree with twinkletoes is where the Mil keeps fanning the flames with gossip to other people without coming to you.  Truth be told...your MIL just wants troops on her side.  What she fails to understand, is that she is just digging a deeper wedge between you and her.  She wants to win, not mend a relationship.  Like the mercy game we played as a kid...complete submission.  My Mil is an extraordinary example of this.  She tried to rally the troops, pulling in parts of the family that had no business in our business.  I didn't say anything to them re: their relative.  So what if they are too stupid to see through the games.  They will forever play them.  I, on the other hand, have more meaningful things to accomplish in my life.  I use it as fuel to live better.  I bask in their jealousy...and I pity their menial circular thinking.  If you have the same actions you get the same reactions.
(gets off soap box)