How can I tactfully tell my mother-in-law I don't like the clothes she buys for my baby?

Diplomacy. Understand. However she is the grandmother and is expressing her love for your baby. Can you put something she gives on your baby when she comes over? Unless there are other reasons to stash the clothes, try to let her participate and have a relationship with her grandchild. It's not the clothes but the relationship that counts. How does your baby respond to her? That's what matters. Take care.
I don't know. This is really a social question more than medical. Best thing is to say nothing, dress the baby in the clothes she gives you when you see her and keep peace I the family. If your husband feels the same way, he might be able to tell her.