I am a Mother-In-Law. And I firmly believe, that MIL's should NEVER tell their Daughter-in-Laws how to train their puppies, or raise their children.
With that said, I think your MIL is the one in need of more training than your sweet little puppy. Next time she uses your bathroom, give her a cookie, pat her on the head, and say "Good girl".
Suggest to her, the age old advice: If you can't say anything nice, don't say anything, at all.
And please, don't even consider rubbing your puppy's nose in her tinkle. It won't teach her anything, but that you're mean.
Yorkie's ares smart, but often are difficult to housebreak. It takes time, patience, and consistency.
Just pick her up, when she starts to squat, and either take her out, or place her on a wee wee pad. She'll catch on in no time.
Sheesh. I hate to think what she might say when you have kids.
Sheila