I think confusion and hurt are reasonable responses. As you can see from this thread, people have some strong opinions about the situation, opinions which are often opposed! MIL could have been coming at the situation from one set of expectations, and the OP from another.
Not having been there, I could imagine the initial conversation going either way. Is MIL put on the spot when the OP says her friend could use the flagstones instead, and agrees only because she can't think of what else to do? Then MIL just sort of puts the whole incident out of her mind and hopes it will go away. Or, did MIL agree with enthusiasm to the idea of giving the stones to the OP's friend, then inexplicably change her mind and fail to inform anyone of this?
I must admit I don't think MIL looks great in either interpretation. If she went so far as to say, "I will let you know when you can pick up the stones," she's taken an active part in agreeing to the situation, and if she wants to cancel the offer she needs to be active about that, too, like by calling the OP and saying she's changed her mind. I think the situation would have to be seriously mis-reported, for MIL to not realize she'd left the OP with the impression her friend could have the stones. And if MIL really didn't want Friend to have them, either right then or later, I think she was remiss for not informing the OP of her own volition. So I think she dropped the ball on that. And I don't like the way she shrugged off the OP's inquiry--maybe they were in front of people and she didn't want to discuss it right then, but it sounds like she didn't seek out the OP to further explain later.
Was the OP out of line for suggesting MIL give the stones to her friend? I think, in a general situation, say with an acquaintance, it would be better to phrase it carefully. "I can't use X myself, but I might know someone else who could. Do you want me to ask around, or do you have other plans for them?"
Saying, "I can't use X myself, but my friend Betty could really use it! She's be so thrilled with it, you know she's in a tough spot right now and free X would really make her day!" could put a lot of pressure on the offerer, who might have had a list of other people they were going to offer X to if you declined.
One hopes the offerer would say, "Well actually, if you don't want it, I'm going to ask people in my family first. But if no one else is interested, I'll keep your friend Betty in mind, and let you know," instead of, "Erm, uh, hmm, okay." But if the offerer felt pressured to agree, I wouldn't blame them for changing their mind later (or rather, sticking to their original plan)--but I think, having agreed, they do need to inform the other person in a timely manner that the offer has been rescinded. Surely the person they were talking to is not so intimidating that they can't call/email/text later and say, "Sorry, change of plans with the X, they aren't available anymore." Otherwise why would they even offer the X to them in the first place?
All that being said, in some families/social circles it would be completely normal, acceptable behavior to transfer an offer of something to a friend, so I can't say if it was actually rude of the OP. Such things may have happened before in her family and it all went perfectly well. I think at this point, there would be no use in saying anything to MIL. As the OP notes, they are MIL's stones, and she didn't sign a contract. It would definitely teach me to be a) cautious of believing MIL the next time she said I could have something (not necessarily so much that she's lying or flaky, but that perhaps I might be misinterpreting her); and b) cautious of trying to transfer an offer to a friend, in case that put the offerer in an awkward spot.