I totally get it-- you dislike it because it shows that your MIL is kind of crazy and doesn't understand you or respect your boundaries. That is an anxiety-producing situation, because who knows what problems her craziness will cause in the future.
So it's not really about the clothes, as annoying as it is to have the clutter and tacky stuff. I have a similar situation and the things I really can't stand, I give to charity or send to ThredUp. You just stick it all in a bag in the mail and get a check back, it really is easy. That way I can focus on picking the battles that really matter.
I also tell my MIL when I am looking for something more expensive, like shoes or a snowsuit or something. Then she either buys something, or lets me know if there is a good sale. I try to nudge her toward "basics" like socks, neutral color leggings, plain shirts, etc., by pointing out how many different outfits they go with.
Whenever I see a little girl wearing one of the godawful princess outfits I give away, I smile because I know someone dressed her in it with love. Your child has a loving grandmother so try to stay focused on that.