As I do not know the local geography I am not sure that I fully understand what you are saying.
At our site, run by the Parish Council, priority is given to residents of the parish so long as there is a waiting list. People outside the parish remain at the bottom of the list, ie people inside the parish will leapfrog them even though they join the list later. While this may appear harsh to any individual concerned it is only fair in the current climate of high demand.
If your mother-in-law, albeit she is outside the area, was led to believe that she would be getting a plot before being let down, then the council was at fault in failing to make clear their rules.
There is no general rule on the subject of waiting lists ... each council can decide what its own rules are. However, any rules should be clear and transparent and they should be applied assiduously in all cases.