My dog tries to bite people+communication problems

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I adopted a Gizmo a few weeks ago. He's a chihuahua mix. He is the SWEETEST dog ever. However, due to how he acts, I think he was abused. I know not all dogs are abused when they were in shelters, but he acts like my previous dog who was.

So, he's pretty OK with most people. He is, however, afraid of big men, at least when they talk. One time he was afraid of a woman with a deep, loud voice.

With any dog, I feel as if you should let them smell you first. I have a problem: Strangers keep wanting to pet my dog. Now, at Petco, he was fine. I was in control, and he simply avoided people who he didn't like. He usually avoids them on the streets, too. However, today a guy tried to pet him. He talked, and Gizmo started growling. I said, "My dog is growling and you shouldn't pet him". Well, he tried to put him anyways. Gizmo did not lunge on him, but only bit when he got close to his face. This guy didn't even let him smell him, he just swooped in with his hand. I think the guy managed to miss his bite, and after he started walking away, Gizmo immediately was fine again. In fact, he usually turns his head to the side and tries to back up when he growls like this.
*EDIT* : It was more of a nip or snap, not a full blown bite. It was definitely not a "I will bite your hand off" bite.

He's never growled at me. I can brush his teeth, rub him, give him baths, and even take his food away without him growling and/or biting. In fact, he will lick me. He isn't territorial at all. He just seems scared. He also ducks like he will be hit if you move your hand too fast, but he now knows I will not hit him ever.

I tried to tell my mother-in-law that he's scared and she needs to spend time with him. She will try to "correct" him when he growls (he only does it when she moves her hand really fast and chases him), but she shouldn't. He growls at her when she just comes barging in our room, which is his safe spot, and lunge her hand towards his face!

The only time he jumps is when people with skateboards and/or bikes go past him, but he usually is fine with it unless they almost run him over (a-hole kids usually who don't care if they run over him).

I'm thinking the problem is OTHER PEOPLE, not my dog. How do I communicate with others NOT to pet him? I don't want my dog to end up at the pound, even though it's the other person's fault. Do I yell at them? Do I say he bites? I can't yank Gizmo away because he will be frozen when this happens. Should I just lift him up when he's around people and carry him? It always calms him down.

My most important question: If someone DOES pet him, even though I try to take my dog away and/or tell them NO, and he bites, can be taken from me? I know to automatically pick him up with children (although he usually tries to get petted from them) because they don't listen. I don't want my dog to bite and get taken away. He is so sweet, and he just seems scared. I have him on a lease at ALL times he is walking.