IMHO, there's a huge difference between not showing off and not allowing your child to be 1) herself and 2) happy.
You don't show off with your DD, of course. No "party tricks." No talk about what amazing thing she can do. We're adults. We can handle that.
BUT...
She's a kid. She is not even 3 yet! Grandma and the rest of the family need to accept that she's smart and that it's not a competition. The other grandkids are amazing in their own ways. Not all kids are gifted, but all kids have gifts and they ALL deserve to have those gifts celebrated. There's more to life than being smart!
I'm afraid I'm of the opinion that the sooner they learn to accept your DD as she is, the easier things will be for everyone. If your MIL is of the generation who doesn't want to be different in any way, this will be harder, however. (I do think there's something of a generation gap there. My mom has always worried a lot more about not standing out than my sister or I do.)
And I agree that if it's your MIL making a big deal about this, then your DH needs to handle it if possible. It's a minefield for you if he's not the point man.
