All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad is His slave and Messenger.
It is very normal for a person to wish that his children be better than other children, this is a natural instinct. So, it is permissible for you to ask Allaah to bless you with a pious husband and with children who will be better than hers, and this is not being egoistic on your part exactly as it is not egoism on her part. Also, this does not necessarily mean that she does not wish good for your children or for others' children.
It seems that you took the matter sensitively to an unbearable extent, and it might be that there is a kind of jealousy that leads to this rivalry. Therefore, everybody must fear Allaah and be preoccupied by what benefits him/her in this life and in the Hereafter.
First of all, we advise you particularly to take it easy and not think about what she said to you, rather turn to Allaah, the All-Knower, and ask Him to bless you with His Bounties. Allaah Says (what means): {And ask Allaah of His bounty. Indeed Allaah is ever, of all things, Knowing.} [Quran 4:32]
As regards your brother, he should be wise; he should prevent the injustice of the wrongdoer, and protect the wronged person from injustice and he should not favor one party at the expense of the other.
Allaah Knows best.