I think that we need to remember that when we marry into a family they have their "culture" and perhaps the things we think is a bit weird or disrespectful is not to them.
Case in point...my sister in law use to make little biting remarks about the gifts I made for her children for Christmas. She thought "handmade" was "cheap". Maybe they were to her...but to MY family handmade was NOT considered cheap and was considered precious because you thought about the gift receiver while making the item. I struggled with this...getting especially "offended" when she told me that "it only takes a few dollars to buy some little something for the kids". I thought WHY would I waste a few dollars on cheap little toys that would break or not even be liked by the child?
I ended up telling her it took much more than that to make the items...and that with every stitch I thought about giving this to the child. I also told her that MY family didn't even give Christmas Gifts...and if we did give a gift for other occasions it had to be a USEFUL gift. I told her that I could not give a gift unless it was "useful" because it was "wasteful and I felt guilty. Sorry but that was how I was raised I told her.
She backed off and stopped the biting remarks. She accepted my "culture" and I accepted hers in that I gave gifts on Christmas because it was important for her. We ended up getting along just fine once I got the issue off my chest. She just didn't understand.
I would suggest taking your MIL to a really nice local yarn store with all the expensive yarns and talk about how much you like this one but it would take 8 skeins at X amount of dollars...and just say well maybe one day...when it is on sale for half price or something like that.
She'll start to appreciate the cost of knitting garments after seeing all that beautiful yarn colors and the beautiful prices. LOL! You'll impress her with your frugal nature (let her believe you would only buy such yarn if it on sale). You'll catch her artistic senses...and she will relate yarn colors to paint supplies (which aren't cheap either).
BTW...I agree with others...IF she gives you something she makes for you...don't offer to pay for it. That would insult me. IF she brings you the yarn...or she says, "I'd like to pick out some yarn for a poncho, lets g shopping...will you help me ? then by all means let her pay for it.
As a MIL myself I have had to deal with a DIL that has a very different interpretation of what a gift should be. I do give gifts at Christmas to my sons and their families despite my elderly parents not approving of this whole Christmas gifts to anyone past 17 years of age. BUT, I give what I am comfortable giving and leave her to accept me as I am. LOL! (I don't know why she doesn't appreciate emergency earthquake kits or kitchen tools...but that's her problem, not mine).