I'm sure you guys have the money for the right reasons, but once you gave the money away you lost control of what can be done with it.
Should she have given it back? No, you didn't say from your original post that it was a loan, so no.
Can she do what she wants with the money once in her hands? Yes, as much as you don't like the sound of it she can.
Way to make sure she does what you want with the money in the future, but why is needed in the right sizes etc, give to the children yourselves. Buy gift cards for particular stores. Or do not give money or help out again.
I'm sorry you feel used and taken advantage of, it's not the best behaviour by her, but it is what it is. I would also assume that this behaviour is quite normal by your mil too, so I will assume that you both knew there was a chance she would not follow through with what was discussed.