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The theory that dogs will bite again once they have a taste for blood is not really true. When trying to determine a dog's level of aggression, you really have to look at the circumcstances in which the bite occurred. Any animal (including humans) will become aggressive to pushed too far - that is simply an instinct of self-protection. The situation you describe suggests that this dog was probably pretty upset by lots of things in the household (being in heat, the loud household, the heated argument) and it really sounds like your mother-in-law may a bad choice in trying to snuggle with a dog that was probably giving her "doggie body language signs" that it was upset. Some dogs are fear biters and react to fear by striking out and biting, and it is very possible that this was the case. The dog was upset and frightened and when "cornered" by the attempt to snuggle, she was just trying to get away from a situation that she found overwhelming.
It is important in any bite incident to really look at the whole picture. If this dog is very nervous and a fear biter and your household is likely to be in this type of situation frequently, she will probably turn into a nervous wreck and you will have more incidents in the future. It has nothing to do with "getting a taste of blood" - it is just because this is how this dog reacts in this type of situation and it would probably be better to remove the dog from this household. If this was an unusual situation, and the people in your family can recognize that you need to respect the messages that the dog is sending when it is frightened and know when you need to back off from the dog (this is NOT the same as letting the dog rule the household), then this can be a controllable situation.
Having your dog spayed may be helpful, but don't assume it will take away any risk of biting in the future.
If you need help sorting out the dynamics of all of the humans and animals involved, you might want to seek out the help of an animal behaviorist. I'm sure your vet could recommend someone. While dog bites are very serious and should never be ignored, it is important to look at why the bite occurred and then manage the situation from there. If there are young children in the household, this becomes a more serious situation as we cannot really expect young children to recognize what the dog is trying to tell them, and then the dog may need to be removed from the home as the risk of harm to the children may be too great, even though this is a small dog.
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