OT, but if I received an invitation to dinner with someone else paying, I would order a cheaper meal than if I were paying. When someone gives me a gift, I keep it, period. Even if it sits in my closet forever, it was kind of them to gift it to me. I'm definitely not returning it or giving it away. If someone paid for my vacation to spend time with me, I would hang out with them not run off on my own. IMO, this is all common courtesy.
I would never accept a free trip though. We would politely decline by telling my inlaws we'd love to go with them, but we would pay our own way. That way I wouldn't feel like anyone should have total control. We would spend the bulk of our time with them just not share a room. If it were an annual event, that would be different. I can see why those who are constantly with extended family would split up. For a once-in-a-lifetime vacation, it wouldn't hurt anyone to hang out together the entire trip. All that said, when we take our DS & his GF on trips, we prefer they do their own thing & meet up with us for meals. That is the only thing we ask of them. I would feel differently, if I weren't the one footing the bill though. I'd go along with what the person paying wanted, which is basically what our DS & his GF do. We just happen to want our alone time.
FWIW, many young kids say the pool was their favorite part of any vacation. Grandma may be onto something.
OP, I agree with those who would stay out of it. Most people don't want vacation planning help as much as we'd like to help them out. If anyone decides to approach the MIL with suggestions, it should be her DD. Parents can be much more forgiving of their kids than their inlaws. If she gets upset with anyone, let it be her DD. If I was your SIL, I would make sure she thought it was all my idea & leave you & your brother out of the conversation. JMO