Wow. Small world.
I would not think twice about my 11 yo son in a room with his friend, because I know what he is capable of, just as you do with your son. Stand your ground, and firmly advise MIL that her opinion is respected when it is asked for.
I was amazed by the following:
"What do we do when we see something your wife does that we know is wrong?"
Again: Wow. Therein lies the problem; she sees you as "his wife" and not your son's mother. My suggestion to you is to firmly advise your MIL that you are the mother, your husband is the father, and the two of you make decisions together. If you let this go without addressing it head-on, you are in for a lifetime of situations and comments like this and worse.
If you allow this to go by without addressing it, you are giving her a free pass and open invitation for future comments whenever she sees fit. Don't allow her to control your life and intimidate you. If you don't stand up for yourselves, no one will do it for you.
I know you are dreading the thought of confrontation. But TRUST ME, the first time is hard, and it will be much easier if there is another occasion. MIL needs guidelines for her role as MIL and Grandmother (note: not MOTHER). You will be glad you did. I used to let things go, now I hit them head-on, and everyone is happier and there is no longer any anxiety. And your husband HAD BETTER back you up on this and be with you when you talk to her. She may get mad, but she'll get over it. But it won't happen again.
In the immortal words of Barney Fife: "Nip it! Nip it in the bud!"
Good luck!