Well, for starters, the bride and groom should be the one hashing out details like this. The groom's family typically pay for the rehearsal dinner, but if they won't or can't, the bride and groom are the ones who need to make other arrangements. As the mother of the bride, you should be taking direction/cues from the bride (who has presumably worked things out with her fiance). They should also be making the decisions over how many attendees--if your DD wanted a smaller wedding, it was up to her and the groom to convey that to both sets of parents. There seems to be a lack of spine in the mix here.
We had our own rehearsal dinner "oops" just the other week. Our niece is getting married this summer. We're driving 800 miles to attend (and do other vacationing, but it's planned around the wedding). Because we're coming from out of town, DH asked his brother if we should expect to be invited to the rehearsal dinner--it's common, but not required, to invite out-of-town guests. BIL says, "Of course! We'll have a great time and be able to catch up!", so I go ahead and make the hotel reservations. Well, you know the punch line--when BIL actually talks to his daughter, the bride, she says that, since the groom's family is paying, and they don't have much money, she wants to keep the rehearsal dinner to the bare minimum. We completely understand, aren't upset or anything. But, I do wish BIL had checked with the bridal couple first.