I'm in a similar situation, and IMHO, you should stand your ground as diplomatically as possible, but back off if it would cause long-term repercussions.
We are planning our semiannual trip for Dec. We've stayed at the Dolphin the past couple of trips, and my mom has joined us. We pay for the room, she helps with the kids, everybody's happy.
My brother's got a 7 & 8 YO who've never been to WDW. I have long dreamed of all of us going together, but they haven't much disposable income. We aren't rolling in it ourselves, but thought we could do SOMETHING, and figured if they could manage the tickets, we'd skip the Dolphin this time and put the $ toward two rooms at a mod or value.
Problem is, Mom LOVES the Dolphin. More specifically, she likes taking boats instead of busses to MGM and Epcot. She has really bad knees, and climbing on & off the busses is painful. I understand her preference, but we simply can't afford two rooms at the Dolphin, and don't want to stay at a different resort from my brother. She hasn't offered to chip in because she feels my brother doesn't spend his money wisely and they could afford to go "if they really wanted to." She also disagrees with our paying for their room.
I thought she'd like the idea of all of us going together, but instead, she's considering bailing entirely

because she doesn't want to stay so far from away the parks. I still don't know how it's going to shake out, but we're determined that my brother's kids will get to go at least once, so unfortunately, mom will either have to lower her standards this trip, or stay at home.
