My MIL is also an alcoholic and this sounds so familiar.
If you husband will stand up to her, then your work is done. *You* cannot change her behavior, and she's cast you as the bad guy, so don't waste your breath or efforts. She will only twist your words to suit what's already happening in her head. Alcoholics like this will not be receptive to their villain (I ought to know).
Never leave her alone with your kids (you probably already don't) since her judgment is suspect. And talk to your husband (only) about what you feel. It is up to him to stand up to his Mom without bringing you into it.
If possible, see if HE will get into counseling, because no matter what he says, it is probably not new for his Mom to get drunk and inappropriate with him, and he may need to coaching in how to handle her.
Remember, there is NOTHING you can do about her behavior - this is all about her - so try not to let it eat you up.
ETA: I *wish* we would all look at Moms doing this to their sons the same we'd see it if Dads did it to their daughters. It is beyond creepy; if it started when our husbands were kids (and in my case, I am sure it did), it verges on criminal. So be gentle with your husband, because she probably hurt him with this behavior before you even came along. Good luck!