Gosh it was nice to read your post - I thought I was the only one with this problem. My mother sends us a lot of things we don't need, and I also get offended. She sends things like baby wipes and baby food - she's even sent toilet paper.
I've confronted her a number of times (both politely and rudely, depending on how tired I am when it happens) and eventually came to the conclusion that she was just trying to send stuff she felt was useful - sort of "I know they have everything, but EVERYONE needs toilet paper."
In my mind, I've tried to think of it as sort of a compulsion - she can't help herself. That's made it a little easier to take. American society substitutes purchased items for nearly everything - it can be a hard habit to break.
There are three things I've done that make me feel better:
1) I have told her a LOT about how we're trying to "downsize" the house. I've mentioned the garage sales I've run and how good it feels to have less in the house. I've even pointed her to the book "Living Simply With Children" which talks a bit about overdoing toys & clothes. There are two other books about it too: "The Paradox of Choice" and "How Much is Enough?," though I can't recommend them because I haven't had time to read them yet.
2) I try to keep a mental list of things we *do* need, so that I can bring them up if my mom offers or asks. The hope is to redirect the good intentions. "By the way, mom, I know you'd been looking for something to get us. We could use some new towels." etc.
3) If all else fails, I take items straight to the CAP agency, or put them in a box for a garage sale without even opening them or taking off the tags.
You might also try directing her towards babysitting, making cookies with your son, taking him for a walk, etc. - activities that will help her feel connected to her grandchild without spending money.
I agree with other posters when I say that this may be something you will have to work your way toward letting go, for the sake of the great relationship you have with your mother-in-law.