Am I wrong?

My MIL is a bit mentally unstable (I have no idea what is wrong with her, she's just a bit loopy). When I first met and married my husband she seemed ok, really annoying and overly sensitive but ok. But about two years ago she started being very critical (saying that we were bad parents, cruel etc. We're a bit strict but not at all unkind, certainly nothing compared to what she and her husband have done (physical abuse, screaming fits etc.) at first it was infrequent and low key but now it's become a bit of a weekly thing where she says the vilest things (or screams them)  and 'forgets' about it a few days later. Now up until now I have kept my mouth shut. I have never said and never will say anything about her qualities as a mother, grandmother, mother in law or person. But it has been very hot and I have been very tired and very stressed (partially due to her behaviour but mostly due to other things) so I have been avoiding her this week. Unfortunately I ran into her on the street so I said hello, we exchanged a few words, I do so coldly in the hopes that she would get the message and leave me alone. She then asked me if I didn't want to talk to her I said yes and tried to walk away but she asked why so I told her that if she wanted me to talk to her she should be less unkind. She flew into a bit of a rage going on about how she always defends me and is although really perfect. I told her that this was untrue and that I was not stupid and that it was not ok to harass me and my husband and tried to walk away. She still wouldn't leave me alone so I told her that she had no right to verbally abuse me and walked away while she was too stunned to do anything. She then had the gall to text me accusing me of bullying her in the street in front of my children (she screams at me in front of them all the time). But like I said she is mentally not all there. It is possible that she just doesn't remember the horrible things she says but I just don't know how much I can take. Like I said, I make a point if never saying anything unkind or personal to her but I feel like I'm starting to go a little mad. Thankfully she probably won't talk to me for at least a week but I don't know what to do once she wants to start talking to me again. I really have had more than enough and I'm worried that I may snap again. While I am sympathetic to her problems I don't want to listen to accusations of child abuse etc. What should I do?