Disneycrazed139, I agree with Granny.
The point of a vacation is just that. Your husband is correct that this is all sounding too stressful (you DO sound stressed!). Spending good time and money at WDW for the world to revolve around a guest at the expense of your family -- the purpose of your trip, after all -- requires some tough love on your part.
IMHO, your loyalty needs to be to yourself, your DH, and your children.
Also, IMHO, your sister needs to be made aware of this.
If you and your sister are as close as you say, yes this confrontation will be tough but she will (eventually) understand.
This should probably be an interaction confined to just you and your sister, at least with the initial conversation. Maybe, as things get sorted out and some kind of compromise can be reached on her part, a family meeting incorporating some of the great ideas on this thread can be had.
If not -- well, she can find other accomodations on her own terms!
We were on the other end, as guests of my M&Fil, who wanted to keep our group of 11 together for 11 days. I didn't want to be mean (knowing there was no WAY this was going to happen), but I did tell my DH that as a condition of our accepting, we required one day alone with our family at the parks, and at least one "rest" day with nothing scheduled. They were okay with that. After 2 days of trying to negotiate the entire group together (two members of which could not travel faster than a shuffle) -- which was very entertaining to me, they finally got it. The rest of the trip was much smoother. We had three magical gatherings events together and a couple of dinners. The rest was every-disney-goer-for-themselves. Very fun!
Having been where your sister is, though -- if she is laying down the ground rules to her participation and you cannot meet them, feel free to turn her down. I told my DH if his family was going to get tense about our family having alone time, I would bow out -- no hard feelings (my job is stressful enough, thanks). After all, she is your guest and the vacation is your family vacation. You can always meet up with her.