Arrynne mentioned providing inanimate objects for MIL to attach to. This has worked well with my mother. She has a special soft blanket and a bunch of stuffed animals. If she starts getting grabby or agitated, someone hands her a stuffed animal.
She also likes to get gifts, and sadly, you can give her the same gifts over and over, and she doesn't remember, but still enjoys the attention and entertainment. When thing are going badly, we stick some things in a gift bag and tell her she has presents. This distracts her and calms her down.
My father, who's in a nursing home and doesn't see her often, is in complete denial about her mental state although she's been completely senile for about five years. I believe this is his way of not having to take any personal responsibility for helping with the situation.
My greatgrandmother is like this. At one of her birthdays we kept putting her gifts back in their bags and putting them to the back of the "line" so she had an "endless" array of gifts. She had a ball, we were all in tears of laughter, because she'd say the exact same thing over each one, and yet she had no idea she'd been handed that gift five minutes ago. (Strangely, the crochet slippers I made for she DID remember! The second time she said "Oh I *do* like these. But i just opened them, didn't I?"
We also tell her the same four jokes everytime we see her. They always get a laugh.
This may sound really mean to do (we don't do it out of desperation, we just like to see her laugh. And we only did the gift repeat one year, I promise.) but she, back when Nanny was Nanny, always loved a good laugh and once told me "Any laugh where EVERYONE can laugh and no one feels hurt is the best laugh."
So everyone gets to laugh, no one gets hurt. Even if its from giving a 97 year old woman the same Coke Mug six times.
As for advice: If you find a response to her questions that she really likes (For my Nanny, telling her someone, anyone graduated something thrills her. She gets told about graduations all year long, and about graduations that happened years ago. She also likes to be told that it looks like rain. Sunny, bright, hot days often look like rain it turns out. rain is unpredictable.) REMEMBER them. They may be valuble ways to keep her happy and you can use them to get out of unwanted situations. (Ex: MIL: *worry, prayer, baby* You: Oh doesn't it look like rain? MIL: Oh yes it does. You know once when DH was a baby it rained so hard that I thought the roof might come off, but I loved that noise on the roof...etc) Rain is probably not your MIL's "trigger" but when you find one with a good story that you don't mind hearing often, keep it in your back pocket.
Same goes for an excuse not to touch. "My nails are wet." (works for a client of mine. She was once a beautician and can 'see" the wet polish and give me advice to dry it.) "Oh I'm so sore right now. Did you get this way pregnant with DH?" (May lead to a sweet story about your hubby) "How do you do [insert something she used to be good at]?" Even if she doesn't remember, it'll make her happy to "teach" And she might actually remember. I learned to make banana bread from an ALZ patient. Its a great recipe, other than being measured at one point in "One ration stamp of canned milk."