I'm going to tell my wife that I won't allow our children to hang out my mil's house
That sounds like a lot of stress. Does your wife have a good relationship with your MIL?
She talks down to her and she's a bitch
Whatever issues you have with your mother in law should not come between the kids. If she is still a good grandmother than it is expected she should be able to see the kids.
I hate her! She is trying to replace my wife as the matriarch of my family.
That's a really tough situation for you and the kids, so I believe it's best to try to mend your relationship for the sake of the children. They deserve to have a grandma and make good memories with her, so why not try for them?