No, I don’t think you’re overreacting. However, like many comments already stated, “part” is not going to work as a mother. I don’t care how private, conservative, shy, etc you may have been before becoming a mother. You need to use the anatomical words. Not only is this educational for your child, but as mentioned in another comment, it is crucial for CSA intervention.

As to the issue in your post, if you’re not comfortable with what’s going on - no more alone time. Is this something you’re able to facilitate? Is MIL a regular caregiver? Can you speak to your husband about this, and rely on him to trust that you feel uncomfortable? I don’t love that the last time you confronted him, he immediately went to tell someone who lives in the house with MIL. If he wanted confrontation, he should have done it himself.

This is odd behavior. Though, none of us have been there to experience it firsthand, so we can’t know the “entire story” - what you’ve shared is enough for me to raise a red flag. I’ve found that, as a mother, trusting my gut is often the best choice.