Help for clothes by: Samantha w/ Help Organize Life
I don't know if you do not have any closets or small closets, but with that said if you do not have enough closet space I would look into getting a armoire or some type of portable closet from Ikea to house your clothing. Both you and your husbands. The first thing you need to do is weed through your clothing to see what you are wearing and what you are not. Then what you have decided to keep you need to put up in your closet or portable closet.
As far as your Mother-in-laws belongings, if you or your husband find it too painful to go through I would either hire a professional organizer or have a close friend to come in and help me go through the belongings and realistically decide what needs to be kept and what can be donated or thrown away or sold. If you do decide to keep something for sentimental reasons I would make a memory box to keep it in that way you won't have a whole room that is taken up with someone else's belongings. Once you get the second bedroom cleaned out you can possibly use that closet for clothes storage.