I'd be upset too. But some people just don't make the connection. My brother has named his two children the same name as his old dogs. We thought it odd but said nothing. A few YEARS later we were talking about one of the old family pets and he suddenly says, " OMG! I've just realised we've named our children after our old pets!" He was mortified. He had honestly not twigged at the time. I have no idea how he or his wife missed it. Brain freeze I guess.
So its possible she hasn't done it deliberately.
I'd say something though. Get DH to say, um mum, do you realise you've named your cat the same name we'd told you we wanted for our baby. I don't know if you remembered. But we find it distressing, as you can imagine. I'd really appreciate it if you changed then name to something more appropriate.
Most mothers would immediately say how sorry and embarrassed they were and of course they'll change it, it was an innocent mistake.
If she refuses to change the name or gets stroppy about it then she's definitely insensitive and being rather cruel.