This is a very inappropriate and uncomfortable situation. You could have a private and respectful conversation with your partner about it first, and then perhaps your partner can talk to their mother about the inappropriateness of such behavior.
Well, if your mother - in - law is filling in erotic stories, it's a serious matter. Maybe you can suggest some more positive and family - friendly writing activities to her. For example, she could write family memoirs or stories about her own life experiences that are more suitable for sharing within the family. And it's important to handle this delicately to avoid causing unnecessary family conflicts.
This is a rather awkward situation. Firstly, you need to make sure you have all the facts right. If it is indeed the case, it might be a sign of some underlying issues. It could be that she is bored or has some unfulfilled creative needs that are being misdirected. However, regardless of the reason, it's unacceptable behavior in a family context. You and your partner should approach her together, in a non - accusatory way, and explain how this makes you uncomfortable and ask her to stop. You could also offer alternative activities or hobbies for her to engage in.