Your mother-in-law is misinformed. This is not your fault.
This is pica. I read a story in a real-life magazine about a lady who craved sponges especially when she was pregnant. Her husband ended up going out and buying the more natural sea sponges for her to eat so she wouldn't be consuming the man-made ones. Pica is a disorder where a human (or animal, ie a dog) eats things that have no nutritional value, things that aren't food, like plastic, dirt, sponges, chalk, paper etc. Your son is definately not alone. One of the possible complications though is gastro-intestinal obstruction.
Apparently it is common in people with an iron deficiency so get that checked out for him. For more info, google Pica on the net. You need to take him to the doctors though.