I would definitely cancel the 400.00 bible study course. MIL firmly indicated that there would be no gift exchange.
I agree with this. She has decided, unilaterally, that there is to be no gift exchange. There is absolutely no way I would buy her a gift - let alone spend $400 on it - for a grandmother who can't be bothered to get her grandchild a token Christmas gift.
Are you still planning on giving her what she has asked for? And if so, why? To avoid upsetting her? Her feelings would be the least of my concerns, to be honest.
And it is absolutely NOT retaliatory rudeness to go along with the "no gifts exchanged" theme that SHE has determined for your Christmas this year. For one thing, it's not rude, and for another, it's not retaliatory. It's what she wants.