It sounds like a lovely idea to professionally reproduce and distribute MIL's writings, recollections, and art. Personally, I balk at the surprise aspect; but I know that's part of your point, so you are the best judge of whether MIL would really like that or not. If I were the writer I would want to know what was being done with my work and how it was going to be distributed. If she already gave it to Ditzy, expecting it to be copied and distributed, she should have no qualms about you doing that job instead, but why keep it a secret? She's apparently hurt to think it already went out and no one cared, so maybe if you say, "Actually, there was a mix-up with Ditzy, and no one got copies. But, we thought we'd do XYZ, and distribute copies at the family reunion this summer! Would you like that?" Then you could ask her if she wanted to do any additional editing, or have you do any, before you print it.
Also, I would suggest making "a lot" of copies, especially if it's just a small booklet. They might get lost or damaged over the years, and you might find that in ten years, someone you wouldn't have even considered interested in it really wants one. Having recently started doing some serious genealogical work for my family, I would treasure something like this even for a somewhat distant relative I never knew, and would want to distribute it further, like by putting it on a personal homepage or a site like Ancestry.com. So perhaps think about future uses like that, and ask MIL if she would be okay with that--you could put a note at the front saying she gives permission to distribute it freely among family and other interested parties, or something.
Also I would make sure you have an electronic copy (like a PDF) that you pass around to basically anyone who has a computer, and back it up several places.