My grandson is now 7, and just recently has been becoming modest about being nude in front of adults, and that's quite normal. That's the signal that adults should also be more modest in front of the child.
Some kids get to this stage earlier, some later, a few are never bothered by it. Family culture probably has a great deal to do with this. Children do not get confused by "practical" nudity, or by caregivers using the toilet in front of the child during potty training. What causes confusion are prohibitions against nudity (as many babies love to be nude), and messages of alarm, shame or embarrassment about naked bodies.
Up to the age of about 3, my grandson put his hand between my boobs a couple of times when he was hurt and his mom wasn't handy to offer this comfort. I'm a pretty level-headed person, but I found this profoundly touching, to be "needed" in this way, and it brought back with a surprising rush the tender mommy feelings I had during my own daughter's babyhood. It was, in a way, "exciting" to be needed again like a mommy, but there was nothing about it that stirred possessive or sexual feelings. Just tenderness, the kind that makes you say, "Awwww, SO sweet!" This seems to me to be well within the range of normal. (And consider, many babies in many cultures had other women nurse them because the mom couldn't; lots of tenderness and love, but mom is still the mom.)
I can't imagine how such an event wouldn't stir some sort of feelings in your mother(-in-law's?) maternal heart, and if you become a granny, you may find yourself puzzling through the same grey areas someday. I don't think it's necessarily something to be concerned about, but if it turns out otherwise, you have a year or two before this will be likely to become confusing for your child. But if it's too uncomfortable for you, why not just tell your mother(-in-law?) what you are feeling. Make it about you, not about her, because you don't know what her "excitement" means unless you ask her about it. (She may not know, either, it may have been just an unexpected rush of feeling.) You have a right to put this off-limits if you are too bothered by it.