Sharpmomoftwo:.... call her bluff!
I say this AS a Grandma, and from the other point of view.
we let our grown son come back to live with us, as he is going through a divorce. he has our grandson ..4.. every other weekend. yes, he pays rent, but it is really helping him out.
In our case, it is smoking. now, both he and his ex smoke, but not around our grandson. and they didn't smoke in the house. we were not smoking "around him" but still when he wasn't in the room. well, smoke lingers....
Our son told us outright that he knew we were doing him a favor, letting him live here cheaply, AND adjusting our lifestyle to having a 4 year old in our townhouse ALL weekend, every other weekend.... still... he has to do what is best for his son..his ex was complaining that the boy was coming home smelling like smoke. and if we smoke in the house when the child is there (even though it is OUR house, and he understands we can do what we want in OUR house) he will bring the boy over to our other son's house every other weekend. (who had agreed, and smokes, but doesn't smoke in HIS house)
LET ME TELL YOU! knowing that I, as a grandma, would miss out on the time with my grandson... no choice at all! now, when he is over, we smoke outside, or in our bedroom with the door closed.
Yes, it's OUR house. yes, we're doing our son a big favor by letting him live here. but...he acknowledged that.. and said he STILL had to do what is best for his son's health.
SO... pretend you have "other" child care arrangements (in the best interest of your children's health). yes, they are doing you a favor by watching them for free. but you still have to do what's best for your kids. and if they continue to feed them unhealthy snacks (and you can provide healthy snacks),you will have to take them elsewhere. ... I think you will be surprised if, instead of asking them, you TELL them the consequenses of not abiding by your wishes... how soon MIL might turn around.
I'm willing to bet your MIL does NOT want to give up the "favor" of free child care (just like I didn't want to give up having my grandson "imposing" on us every other weekend)