This seems like a pretty simple problem. I wouldn't worry about extra guests. Its just cake. Even if your place is small and people are ending up indian-style on the floor, that's not really a problem for you if its not a problem for the guests.
The only "real" problem I see is the allergies. I don't the answer is to stage some show with the epi pen, since I know I'd feel insulted and condecended to by that kind of nonsense. What I would do, though, is send your fiance over to have a heart to heart with his grandma and aunt about allergies. I suspect that they simply don't understand the severity of your daughter's allergies. It sounds like there's some personality clash going on there and I would guess that's the root cause- they think you over-react. Your DF should go over there with some written inforamation about allergies that they can read, prepared to explain how to read lables to verify that foods are allergy safe. I know a kid in my son's daycare class had a peanut allergy. I bent over backwards to be sure the cupcakes I brought in were nut free, including scrubbing down my kitchen, appliances, etc., to make sure there was no trace amount of nut in the cupcakes. After all that work I brought them in and the kid's mom was like, "oh yeah, we just think he had a peanut allergy because he got a rash once on the same day he'd had peanut butter, but we're not really sure". There are a lot of people out there that are kind of flaky. I think your DF could do a lot to explain and make them understand you're not being flaky and understand the dangers.
A cake covered in nuts can be, btw, delicious. I like my carrot cake with all those nuts on the sides. Yum.