Wow, I would be fuming too if I were in your situation.
First of all, if you and your sister made these plans together, regardless who came up with the idea to travel together, she should have told you from the very beginning if she was not 100% happy staying at POP. Even if she was happy about it, but her DH wasn't, then she should have called you right away. I mean, what is the big deal? Of course you would have been hurt and upset had she called and told you that, but definitely not as hurt and upset as you are now!!!
Changing the reservations behind your back is just...there are no words for that, in my book. I mean, it is your/Dh's hardearned money that you gave her to pay for the vacation so you should be informed of a reservation change.
Having said all of this, I seriously do not understand why you have to get your husband and BIL involved. She is YOUR sister and YOU need to deal with her. Call her and talk to her about it calmly and see what she has to say. If it was meant to be a surprise for her from her DH - well, too bad at this point. He should have had enough sense to call you and fill you in on his plans, don't you think? How can you sit and wait to talk to her about this? I would have called her last night. The more you think about it, the angrier you will get and that won't help the situation at all.
Please call or go over there NOW and resolve this problem.
Oh, and another thing - don't let your sister ruin what could be a magical vacation for your kids. You know they'll love every minute of it and once you see how happy they are and see the smiles on their faces, you'll know it was the right decision to go on the trip anyway.
On the upside, if you don't go with your sister and BIL, you and your family can do whatever you want/whenever you want it without having to always discuss, argue and compromise about your next move.
Hope you resolve this very fast and keep us posted!