Trust your instincts mom. He could be perfectly innocent, but that's just creepy to eroticize a 3 month old baby by calling her sexy. Even if it was innocent, it was inappropriate.
If you do talk to him, the only positive thing that will result is that he will be more guarded and careful and perhaps more sneaky. If I were you, I would NEVER let any of my children alone with him and unfortunately, I wouldn't let my kids alone with his wife, your MIL either. She might not see that this behavior is inappropriate, or she might look the other way. Could you imagine letting her babysit, and then she needs to run to the grocery store and leaves your daughter alone with your FIL? She might think everything's fine, but that could give him an opportunity to do something we don't want to imagine.
I'd keep my distance. All your daughter has to protect her is you.
Good luck!