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Having an elder living in your home means they need a set of simple house rules to follow that respect your privacy. It's not ONLY her needs that rule the roost, your needs matter too. So it's time for a family meeting to lay it all out on the table. If she's disagreeable, you can help her move into managed care or senior apartments somewhere. Living with you is a privilege.
Does she fall asleep in a chair in the living room?
If she does does her falling asleep during the day effect how she sleeps at night?
What does she do in the living room? Does she participate in family conversation and activities?
It is possible that she is afraid she is going to miss something.
You could tell her that she can keep her bedroom door open so that if something happens you will be sure to let her know.
Tell her she does not have to "sleep" she can rest before dinner. Or lunch.
If she has a TV and a recliner in her room that might not be the same as "going to bed"
I suppose the other question is what do you mean she has "taken over" the living room?
I don't know if you are dealing with dementia here, but if MIL is competent to understand you it is time for you and hubby to come together FIRST and then tell MIL that you need some time of your own. That the living room is yours and hubby's with the except of posted hours.
Make her own room comfortable, have her music and TV there, and see to it that the best chairs in the house are in there, but truth is that she may be shadowing a bit, and wanting to be near you. If that is the case you may be looking at placement soon down the road.
Wishing you the best.