UPDATE: Annette and I have been talking about this issue off and on since I posted this thread, and I brought up several points mentioned here. (Particularly the one about it being unfair to leave Taylor with the person who upset her in the first place.) Annette said her husband, Todd, agreed with this point (a lot), and they decided to change their strategy.
A few days before Christmas, Annette and Todd and Taylor stopped by for a short afternoon visit with the inlaws. It was a fairly standard visit until FIL said, "Hey, Taylor, I bet you'll never guess what we got you for Christmas!" with this big sly grin. He was using the same tone of voice he uses when he "sets Taylor up" and Annette and Todd's hackles immediately rose. While Todd said in a loud firm voice, "Dad, let me stop you right there," Annette scooped Taylor up and took her out of the house. While Annette packed Taylor into the car, Todd told FIL that he couldn't allow FIL to provoke Taylor and from now on, they would leave if FIL did it. FIL protested that he was only going to give her a hint of what her presents were. (Which personally, I think is sort of questionable anyway.) But Todd responded that they couldn't trust FIL to "only" tease Taylor (and not taunt her), so until FIL recognized that he was doing something hurtful by provoking her, Annette and Todd would continue responding in this fashion.
FIL told Todd he was over-reacting. MIL seemed to be in shock because she didn't respond much beyond asking them not to leave. They did see the in laws for Christmas Eve, but FIL stayed quiet and didn't interact much with Taylor (read: pouted) and grumbled about "not being able to say anything." I don't know if MIL read him the riot act or if FIL was shocked by Todd and Annette's reaction and didn't want them to do it again in front of the rest of the family (gathered for Christmas), embarrassing him. I don't know how long it will last, but, for now, Todd and Annette's response seems to be a successful one.