Can my mother-in-law block my phone number to stop me from talking to my kids?

From the way you have phrased the question I am assuming that you are still married, probably not legally separated and that there is no order regarding support, visitation, contact, etc. with the kids.

Is it wrong for her to block your phone number?  Probably yes.  Is it illegal?  Probably no.  Especially if there is no court order here.  It is her house and her phone.  

You need to consider speaking with an attorney and going to Court to establish your rights to speak with and see your children.  You also need to speak with your Wife about your concerns and try and figure out a way to correct the problem.  It may seem that I am being over simplistic and making what may be a not so good situation in to one that is easily dealt with.  But divorce is never easy.  Especially on the kids.  And you may need to do something to insure that they have the ability to call you when they want, like getting them a cell phone (pre-paid even works) and setting a time for them to call you each night for sure (but anytime they may need you as well).  And remember, until you have something in writing that established your rights you have no real clear violation by any party that you can act upon.  Good luck.