Did you have the initial conversation with her? If so, how did it get from "Let's meet at a restaurant" to "We're coming over"? If you're the one who had the conversation with SIL, then you missed your chance to stand your ground. If YH did, then he should fix it or be the one to clean the house before they come over.
FWIW, kids exchanging gifts in a restaurant sounds kinda overwhelming to me. I'm having visions of my niece and nephew shooting Nerf darts all over the place and firing up noisy toys. I'd rather suck it up and have everyone over. Our families aren't particularly gossipy though.