We all muddle through - doing what we believe to be the right thing at the time. As it clearly isn't feasible for you to continue with the present arrangement - you have to make some changes. Don't bother looking back - no point - just find the best way forward from where you are. Living nearby sounds a good alternative, so your wife can continue to give support, together with Social services, but it also gives you and your wife your own space. Don't feel bad. I think that we have to remember that we are all entitled to the best quality of life that we can have under the circumstances - so your needs and those of your wife have to be considered as well as your MIL.
MIL is clearly not happy, and it may not be possible for this to change. You and your wife, however, can have a happier life while still keeping an eye on mum. No one will benefit from you, or your marriage, going under.
No way would I have given up my own home, after all the years spent saving for it.
My mother having lost her grasp of "economics" didn't realise that although she could afford to move to live near me, vice versa was impossible. And she wouldn't move when it was still possible. In the end, her choice.