Be very careful in what terms you use, not just because of conversational prejudice, but be aware that terms are a minefield in eldercare, because what something is called can determine whether or not it is eligible for 3rd party payment. For instance, not being formally admitted to a hospital, even though you are staying overnight for multiple nights, means that Medicare will not pay for almost any of the services received. Medicare does pay for some rehab, but never for more than 100 contiguous days, and even then, only when some REALLY byzantine requirements are met.
If your MIL is still mentally sharp, then assisted living with some extra rehab services is probably a good compromise for her. For people of limited means, entering a nursing home is generally going to end up being a one way trip, because the expense is so great that it almost always wipes them out financially if both need services simultaneously. One thing MUST happen immediately, however; she MUST get out any and all health and long-term insurance policies and have them gone over by whoever is coordinating their care. If MIL expects to do it herself without aid, someone (preferably a physician) needs to point out that pain medication can often cause temporary confusion and inattention; so she needs a backup person reading everything that she signs right now so that she doesn't agree to pay for things that her insurance is supposed to cover, and to make sure that all filing deadlines are met.
If either of them is a wartime veteran, the VA does pay for some assisted living expenses. The process to get the benefit is long, so help your MIL get on that right away if they are eligible.
My MIL is going on 9 months right now since she had to leave her home. The first 3 months she was in and out of the hospital every few days, while they figured out what was causing her to fall, then gave her rehab for her broken bones (including her collarbone and 5 ribs). She doesn't have a Medicare B policy, and it can be nearly a full-time job coordinating her benefits and dealing with all of the claims. We have already filled a 3 drawer filing cabinet with paperwork related to her various medical bills, and there are more every day. Her home is on the market, but if it does not sell soon she will be forced to forfeit it's value and apply for Medicaid, which will require that she change facilities to a residential skilled nursing facility, aka, a "nursing home". In this state, Medicaid won't pay for facilities that are classed as assisted living. Her current place, while clean and well-serviced, is one of the least expensive in my city, and her expenses there are $3600/mo, which includes her meals, but not her meds; her insurance pays separately for those. Her income just isn't enough to cover it all; she has to dip into savings, and because of all of the medical bills from last fall, the savings are dwindling fast.
Right now she is in an assisted living facility that offers extra a la carte services. She has nursing staff to monitor her medications for her and check in with her via intercom 4X daily, a physical therapy practice on-site so that she can go to treatment by rolling her walker down the hall, and helpers who come in and help her to change and dress, and to help her bathe 2X weekly. All meals are provided in the dining room; though for an extra charge they could be brought to her room and served there. Her private room is a studio, it looks rather like a room in an extended stay motel; with a small kitchenette with a fridge and microwave. She also has a private bathroom. In a nursing home, she would have to have a roommate and share a bath, something that is normally a huge roadblock, but which isn't so bad if the two persons sharing the room are a couple. (The tricky part of that being that many facilities will not allow couples to occupy the same room if they do not both need the same level of care.)
Good luck; it's a long, hard road.