I have the same ongoing issue with my MIL. Bottom line is, we don't visit her home as she refuses to smoke outside. She was more than a little put out when I politely asked her to do so when we visited! I got a huge lecture about it being HER home and it was her right to do whatever the heck she pleases in HER home and how dare I suggest otherwise. So now, if she wants to see my children she comes here. I have made it ever so clear that this is MY home and she will abide by MY rules in MY home, particularly when it comes to the well being of MY children.

Good luck, it's a tricky one but definitely a battle worth having.