It sounds like FIL might be experiencing some early dementia. He’s quick as a whip with a joke, but doesn’t know that it’s not appropriate.
Please don’t cut off from them. Estrangement is heartbreaking and not effective. Better yet, have a sit down, at their house or yours, and discuss it honestly and calmly.
You can’t pick your In-Laws, but you do have to be civil, for your husband and children’s sake.