My first advice is please hang in there, get help for yourself because this issue will improve with the passage of time.
If you analyze the situation keeping emotions aside. Here is a mother who has brought up her son from the age of 13 without her husband. She would have struggled, worked hard to feed him, give him an education and look after both of them. She is now old, no other support and has arthritis to cope up with. Now her son is married and a new person is added to the family with whom she has shared the personal space, the time and attention of her son and the home.
Her behavior would be a simple call for help as she is unable to come in terms with the changes. You have stated that you liked your husband based on some of his good qualities. No harm, you all have to tide over this crisis.
Firstly, do not escalate things by entering into an argument. Be strong, focused and not disturbed by the emotional tantrums. Learn or practice Yoga, relaxation exercises or if you cannot afford, just simple walks in the mornings, visiting temples, meditation centers etc. Keep your husband with you for these activities because he also will be suffering seeing his mother and confused about how to keep both of you happy at home.
Then gently get your mother-in-law to visit a nearby hospital. If you are government employees, then all you have to do is meet the Medical officer and get a specialist reference to see a psychologist and psychiatrist. These consultations although expensive in the private sector can be arranged via the CGHS or in good Government Institutes. Once your mother-in-law gets professional help, counseling and or medications, she should change.
In the meanwhile, keep your marriage as the center of focus and try hard to keep peace at home and nurture the bonds among you both and both of you with the elderly mother. You should also get help by means of simple counseling to help you to adjust and get over your angst.
Do this, improve the home environment, take your mother-in-law to parks, temples, simple restaurants, attend some poojas in the temples close to you, all this will generate positive energy and help her and you. Once you both get over this period of animosity, then things will certainly change for the better.
Give it 2-3 months, then once the situation improves, then the need for professional help/medications all will come down. Arthritis tends to get worse in winter or in cold climates, she gets that also checked up, she may need better medicines for her pain. This also can be done at Government centers.
Do you have your family members close by to support you? seek their help too. Be positive, this is just the beginning, with efforts, perseverance, and love, such issues can be overcome. After few months, the new changes would bring in a new phase of life/marriage. Later on, the arrival of the first child would also help in changing the home atmosphere and your mother-in-law would be your support to help you with the baby. So, look after yourself, your mother-in-law and your husband.