MIL Advise (sorry it’s long)

We haven’t been in the greatest terms with my MIL she has only met our DD once. We met halfway at a restaurant and she never even held her which is fine. Here’s my question she smokes chain smokes and she’s the only one in the family to smoke. After the one time of her meeting her granddaughter we left the ball in her court and said this was fun let us know when you would like to do it again. 3 months later she reached out and wanted to do a bbq. We agreed and asked when. She said you pick. We said “how about Sunday as long as it isn’t raining. We would prefer to stay outside because we don’t want our daughter around smoke.” Her response “I am appalled, insulted and extremely disappointed to even believe you would think I would do that in front of my granddaughter. I guess this wasn’t the best idea I ever came up with. To even think you wouldn’t step in our house? I can’t plan something depending on weather, sorry. We all know how I love to cook, and to have extra food if you don’t show up isn’t fair. Perhaps another time. Oh well, in my heart I know I’ve tried. Give my sweet little girl a kiss and hug from her grandma that she will probably never know. I will always love you and never forget that. So wish I knew what happened, but I guess at this pint I never will. Love you.” Our response back “This is exactly the issue. You jump the gun on everything. I said I don't want my daughter in your house, in which you smoke in. If that's how I want to raise my daughter that is my right and you either need to respect it or not see her. You have told me you wouldn't come out and see her yourself because of us living at the In laws house and I didn't flip out on you, I respected it and we came up with a different idea. You do this every time things don't go exactly your way. We could have come up with a solution together, like planning on a weekend that the weather will be better but you automatically jump to oh well at least I know I tried, and that your granddaughter will grow up never knowing you. You need to be more flexible and come up with different ways to see her, or you're right, she will grow up never knowing you. I didn't say you would smoke around her, I just said that I don't want my daughter around it. It's something that you have to accept because she is my daughter and I want what is best for her and I don't want to expose her to any amount of second hand smoke.” (We are in the process of moving therefore living with my parents) please tell me your opinions so sorry for the long rant. We clearly have issues but my husband and I decided due to our daughter to try to let it go but she constantly does and says something like this when we try to speak to her. It’s been this way for over a year since we have been married. Thanks in advance