like you mentioned, he is more obliging, n perhaps more easy going, so his dad finds it easier to ask from him.
since he returns the loan to your hubby, i think it shld be OK.
what you can do is, keep a sum of money for your baby, the rest which you can afford to lend to your father in law, then lend, if say he wants to borrow 2K, but you only have 1 K to lend him, then just lend him the 1K.
just make sure the money you keep aside is enuf.
if he asks how come, tell your hubby to explain to his dad that he needs it for the baby, so that money cannot touch.
im sure his dad would understand n get the message somehow.