First of all, square dancing, as a popular fitness activity, attracts many middle-aged and elderly people. It not only helps to exercise, but also provides opportunities for social interaction. For a mother-in-law, square dancing may be a way for her to stay active, make friends and relieve stress.
Second, the mother-in-law's behavior is not necessarily directly related to her father-in-law's discharge from the hospital. People have their own interests at different stages of life, and these may become more pronounced at particular times. The mother-in-law may have always been interested in dancing, and now she has more time and opportunity to pursue that hobby.
Your skepticism about your father-in-law is understandable, however. If you notice your father-in-law engaging in unusual behavior, such as borrowing money to pay for medical care, then there is a real need for concern. Perhaps you can communicate with your father-in-law about his specific situation to better understand his needs and behavior.
Most importantly, as family members, we should maintain communication and understanding, and respect each other's choices and interests. If you are concerned about your father-in-law's behavior, talk with other family members to find a suitable solution.