I got caught at this last year, and probably will EVERY year! DS's birthday is right before Christmas, and he gets a TON of crap from family, friends, friends of my parents I don't even know... So most of it goes to Toys for Tots!
Last year, I told my family I didn't want any noisy plastic toys. DS was turning 1 and just didn't need that kind of stuff yet. ("Need"... YKWIM!) Well, he got a wood puzzle (still have it), a plastic piano that doesn't even work logically (kept it, never played with it, donated it after several months), a plastic radio that didn't do much except make noise (donated immediately), and plastic stacking rings that light up and play music (regifted). They come over and poke around, asking for the radio or the "other" stacking rings (he already has a set that play music - ugh!). I just say it's around here somewhere, he just had it yesterday. But I think they know... We'll see how they do this year!
Don't feel bad. It's your house and now your property (once the gift is given) to do with what you want, and it's no one's business what happens to it. But yeah, I'd still feel bad. I wouldn't want to find out that I've been giving awful gifts FOR YEARS only to have them tossed immediately. No one wants to feel that way. But geez, your MIL is sure trying hard to get there, isn't she?