The hallucinations your mother in law (MIL) is experiencing could be due to many things. Your letter does not say what she is "seeing", but you mention she is also
"confused and disoriented". Since she has only had 3 doses of morphine, I would doubt that the medication is causing her confusion. I think your thought about the lack of blood to her brain is more likely to contribute to her confusion, especially with her health history.
Since she has had 2 heart attacks, which is caused by clogged heart arteries, we can assume your MIL is at risk for build-up in other blood vessels, including the ones in and around her brain. This can definitely cause confusion and even dementia (vascular). Furthermore, if the heart attacks she had have worsened her heart function, so much so that her heart is not beating well and leading to worsening CHF, this can also lead to confusion. This can occur since there can be a lack of blood flow to the brain from not only the heart not pumping well, but also if there is fluid in her lungs, as this can lower the oxygen levels in her blood.
I wouldn't worry about your MIL lack of keeping her legs elevated. She may have poor circulation in her legs, which would make keeping her legs elevated painful. At this point in her life, she should be doing whatever makes her comfortable.
I know it is really hard to watch someone decline, so it is good that Home Hospice is involved. Let them know what you are experiencing with your MIL, and see if they have any suggestions to help her. Also, remember to take care of yourself, as taking care of someone is physically and emotionally difficult, and this can cause a great deal of stress for you.