D.B.
When I first started reading this, I thought perhaps your husband had children with her, in which case I could understand not "erasing" her from the family photo wall. But then I saw that there are no kids, so her behavior is inexcusable. (Even if there were children, lying and joking that it's you in the picture would still be cruel.)
She has problems. I think, if she really needed to keep a picture in a private area of the house (her bedroom), you wouldn't have an argument. But having it in the public rooms, and then engaging in this bizarre behavior of involving the little kids (nieces and nephews) in her cruelty is beyond the pale.
By the way, I disagree about covering up the ex's face. The pictures go away, period.
Here's the thing, though. You and your husband have all the power here. I know it doesn't feel that way, but you do. So, stop going over to her house. Concentrate on having a healthy pregnancy. If someone wants to throw you a baby shower, you have control over the guest list and you have control over whether you agree to it at all. I would absolutely refuse if she's in charge or it or directly connected to anyone who is (and the grandmothers-to-be should not be planning a shower anyway). If you are in her presence and she starts in on this nonsense, get up, go get a glass of water, go to the bathroom, go lie down because you have a headache, anything - pregnant women have lots of "moments" of not feeling well. And you can get up and go home. You really can.
Do not inform her when you go the hospital - and do not inform anyone else who will tell her. Your husband can call her after the birth and inform her, just as he will call anyone else on the list (his siblings, for example). He can also set up a sort of phone chain for both sides of the family, so that he's not making all the calls (and neither are you). Do not invite her to your home when the baby comes - concentrate on happy and positive thoughts, and helpful people. Over time, if you visit with her, you can always get up and take the baby home because "the baby is fussy" or "we need a nap" or anything else. Get up, remove yourselves and the baby from her presence, and be done with it.
Your husband is the one who has to handle her. Stay out of it - it's really better for your senses anyway, but this is not a fight you can win. You have to take the Road of Confidence here, that you have your husband and child, you have her son and the ex-wife does not, and your MIL will have the choice of aligning with the woman who is not there and also missing out on the new grandchild, or of straightening herself out and realizing that a joke is only a joke if everyone is laughing.
I'm sorry you're going through this, but please take and hold on to your power here.