This isn't complicated. You aren't marrying your mother-in-law. You are outraged and rightly so. Not all parent/child relationships are good, and not all parents are good. Your mother in law is a prime example. Later on, you or your new wife may be poster material for bad parenting. Hard to know.

If you are looking for internet validation of your future wife's rage, that won't be hard to get. It's OK to be really angry and sad about this, and I am sorry you encountered such VISIBLE racism and such a negative event.

You'll have to put it behind you in the interests of living as good a life as you can. it's sad, but there's no reason you have to include FMIL in that life. She may someday grow up and evolve, but that is neither up to you nor in your control.

Note that your wife was blindsided, too. She just lost a parent she thought she had and discovered a new, very bad one. She will grieve and mourn, even though enraged. It is a stressor and will show up in your relationship. Won't be the first or last time something bad shows up. Depending on how you react to it, you will set the stage for future events, so try and do wise, adult, and decent things if you can. No revenge, fighting, encouragement of conflict. MIL may have no character, but it's important that you and wife do.

Someday, perhaps she'll come around and you can forgive her her bad acts. People change. FIL sounds like a good egg.

Try not to let him or anyone else force you into an association with MIL because solely of the 'family' thing.

(I am speaking as someone who 'divorced' his MIL. She was outrageous and now she's not a factor in my life. The cost to educate and change her is too great, the cost of tolerance of misbehavior too great, and it's inappropriate. Her character is her project, not mine. Not everyone thrives. )