Okay, this may be long but please read and help!!

I've been living w/ my inlaws for almost two years now.  I knew from the beginning that his mother would have problems because while we were engaged she would get upset when he bought me things (and say things to him like 'you've never bought anything like that for me') but I figured with time she would adjust and we could be one big happy family...WRONG

A few days after we returned from our honeymoon, she began being very controlling and demanding...in a sugar coated way.  I would like to think of myself as a very patient and accepting person- I decided to give her time to adjust to having another woman in her home as she has never had a daughter and has been living with three males her whole life, FIL, my husband, and my husband's younger brother. If I learn anything from MIL I hope it's how to stab people with a 'miti churi' (translation- sweet knife)...she is the Queen of that for sure. 

The first fight was strange to me, I was making breakfast for my husband and she needed milk for her chai.  It was snowing so she asked him to go get it for her (God forbid she goes out in the rain or the cold).  I told her nicely that we were going to have breakfast and then I would go get it while he got ready for work...but she flipped out, slammed the door, and returned w/ the milk and started screaming something to this effect to my husband (in Hindi and a very screachy loud voice)~

YOU ARE MY SON, I WENT OUT INTO THE COLD WITH A BARE CHEST, I COULD HAVE GOTTEN SICK, YOU ARE MINE, I AM YOUR MOTHER...(mind you she purposely did not wear a jacket! who goes outside w/out wearing a jacket in the snow? it was an obvious attempt to elicit guilt which is her strongest tool for getting what she wants)

Okay, so that was two years ago and very good predictor of what was to come. 

Since then its been a very chaotic relationship between my MIL and I.  She is a very defensive and insecure person and everything I say or do is interpreted as an attack at her.  Whenever I cook something that my husband, BIL, and FIL enjoy, she gets upset and does not speak to me unless someone else is around.  If my husband is upset with the way she treats me and says something, she gets even more upset with me and takes it out on me. I have tried my best with being the good daughter in law and doing everything in my power to make them  happy. 

When I got married my husband had not finished school and the entire family has been struggling financially.  I had a stable income and with my financial contributions we have been able to get out of debt and manage our money successfully and get to a place where we are comfortable.  We are working very hard to make ends meet and she does not appreciate all that I have done to contribute to the household.  Instead she nitpicks about stupid things like one glass if it is left in the sink rather than focus on the big picture.  I believe she would have been more happy with a DIL who sat on her behind all day and watched dramas with her rather than someone who is working day and night to help her husband and son pay the bills. 

She has outright LIED to my FIL and husband saying I have called her names, cursed her, and done things I have never done.  I am too afraid to be alone with her because she will make something up that I did not do.  My husband has caught her lying about me several times and now he gets more upset than I do and he has told her many times to stop.  What she does not understand is the more she mistreats me, the more her son is slipping away from her and she is blaming me for her relationship with my husband.  I am not the type to nag to my husband about what she does and actually I tell him to forgive  her and that she will change...but he is more sick of it than I am.

It has affected my relationship with everyone in the home, including my FIL who used to adore me but I have noticed that her lies and jealousy and manipulation have effected the way he treats me and he has begun lecturing my husband and I to respect her more! of course he only hears her miconstrued side of it and she has definitely turned my FIL and BIL against me by spreading lies and playing the 'victim' by screaming and crying over every little thing. 

When my parents were visiting my in laws had invited them over and my husband and I decided to leave because we didn't want to make the situation worse by involving them.  I also didn't want to be around to get the 'fake' treatment she gives me in front of others so this time she cried to my mother and LIED to her about things I've never done.  Luckily my mother called me and confronted me and my MIL was caught in her lies on the spot but now I am afraid to what lengths she would go to in order to get others to take her side...even if she has to lie to my own mother about me! and her response to being caught in lies- 'everyone lies, even you must'....in the sweetest manner you can imagine!  So now I am very angry that she involved my family into this as I was trying really hard not to give them any stress or problems because my parents are very caring and concerned people.

I don't think I will ever forgive her for this but how can I go on respecting her as a good indian wife should do?