I like the husband outside solution!! On the other hand if the dog bit and DREW Blood because he was picked up then there really is a problem and maybe hubby's concerns have some validity.
Wow, it sucks that you have to deal with this situation when you should just be enjoying your new baby. I agree with alot of the advice given here. Don't get rid of the dogs, nor make them outside dogs especially seeing as they've been house dogs their whole life. No it won't hurt them physically, but emotionally I can see it being really hard for then, and that may cause resentment on their part towards you and hubby. Put him out in the yard along with the big mouth MIL. Stand your ground! I wish you luck with this, and hopefully things will settle soon and be back to normal.