We suggested having the reception back home and both said NO. They want it following the wedding. There is no mother of the bride and FOB has not even asked about the plans after losing the battle to have it here. He wanted her to have it the gym of his mother's church in a questionable part of town because it was free. He thought they should use the wedding money for something more practicle. One option they gave us for the alcohol was drink tickets. It would be around $800 for 120 tickets. Open bar is $1800 for the first hour and $480 for the second. It is really hard planning this thing when you really have NO idea how many people will travel. Its a 5 hour drive for most and then a ferry ride to the island. We are getting ready to send the save the dates very soon.
In that case, I think you've thought out all the options and the B&G know exactly what they want. Just have a smaller wedding and it'll turn out great.
Regarding alcohol vs. non, think about what is more important to both families. To have more guests but no booze or to have less guests but with booze? Depends on what both familiies think is appropriate.
Although I have to say, I rarely hear wedding guests say "Where's the free drinks?" at a wedding (unless you're talking about college aged kids...

And as you mentioned, you don't know how many people will say yes to the RSVP. Maybe you'll end up with 60 people anyways. Then you'll be within budget and everything will be fine.
After all the hulaballoo is done, if you feel like you want to throw another party for the rest of the guests who couldn't make it/didn't make the final guest list you could always have a backyard bbq or something.