I look at that photo this way....mil would rather have x dil instead of you. Now that you know this I would make comments to mil like, Oh look a photo of the previous woman. Oh toooo bad that didn't work out. And laugh. I don't think you should let her know it bothers you because this will give her power to do more of the same. Dh married you and there's nothing mil can do about it....but keep that pathetic photo on her wall.
My mil had a photo of dh and an x-girlfriend on her nightstand. A very large photo that took up most of the n.stand. It was the last thing she saw before sleep and the first thing when she woke up. She doesn't have any of our wedding photos anywhere in her house. This speaks volumes.
My mil plays favorites too. She is always going on and on about her favorite and it's not even her child and in the same breath she puts me down to make sure I get she doesn't like me. So one year I got mil a big photo of this person. I put it in a nice frame that said, Family is all you need. Since dh is mil's only child she looked puzzled and kinda stammered in her words. Bingo...I hit the mark. That year dh and I didn't attend the holiday gathering. When mil complained I said oh x will be there and I know the two of you are so close...you will have a great time together.
Now that you know who and what your mil is and who she prefers, act accordingly. Let dh buy gifts for his mother. Don't remind him. Don't answer the phone when she calls because you know she would rather talk to the xdil anyway. Just drop the rope. Don't announce what you are doing just do it.
The next time you are at mil's house tell mil you just love that photo of dh. Then say something like ... I bet those grandchildren would have been really cute. Too bad that didn't work out....OR.... So glad that didn't work out because now he's mine. Make sure to giggle and laugh a little....then wink at mil. This will give you the upper hand. Say I love that photo as I really appreciate THAT didn't work out because I would have never met dh. I love that photo because it reminds me of what not to do with dh...be anything like her. etc