Is it typical to forget one person when a person has dementia?

How was your relationship before her dementia? It could be that your mother-in-law resents needing care so much that she's "replaced" her daughter-in-law with the idea that you're hired help. Confusion is very much a part of dementia, so this could make sense.
At any rate, I wouldn't say she is faking, but her behavior does seem to be about your relationship with her at this time. Try not to take it personally, even though it's hard. If she is truly doing this on purpose and you don't react, she may "recognize" you again. However, I think it's more likely that she's confused by the role you now play in her life.
Take care,
Carol

Thanks Carol! I have been just answering her questions in a basic way. Like when she asked me if I was sleeping over last night. She says she recognizes me but has no idea who I am or what my name is. She knew my son, but did not recognize him as my son. Our relationship has been rocky the past week or so, and she had become more argumentative and lashing out at me more. He has asked who I was a couple of other times and once told me "You are nothing to me!"-yes, I took that personally, but at the time I didnt realize what was going on. i thought she was just being mean. My husband told her he didnt think we would be able to care for her much longer and now, she doesnt know who I am???

Why don't you read some books on caregiving for AD and dementia patients before you give up on her. Talk to her physician perhaps he will suggest a medication for your MIL that will decrease her lashing out at you. Perhaps she could go to assisted living if she becomes less aggressive. God Bless remember this is the lady who raised your husband and is grandmother to your son.