Hi NikNox...I don't have children nor am I an ACoA, so please take what I think with a grain of salt.
Your SD is 14yo. She is at an age, and it sounds like has had the support, to make appropriate decisions for herself and who she interacts with. You, as her parents, can certainly help guide and/or support her in those decisions. If she is saying she does not want contact with AM, then it should not be forced. It sounds like so much damage has already been done to her & she is aware of it so she is smart to keep her distance. I believe your support & defense of this decision will help her confidence grow. Should AM come out of rehab and remain sober for a few months, SD may decide to change the plans she has made now, and that is okay too, but it's great to have a plan going in.
I would say it sounds like you all need some boundaries for MIL. Maybe if she brings up physical contact with AM, the conversation stops. It sounds like you have made SD's desires on this topic very clear to MIL but she is continuing to disrespect them, so time to put an end to the acceptance of this unacceptable behavior.
Sounds like you and DH are doing really well with SD...so keep doing what you know is best for her. My thoughts & prayers are with you all.