I agree with you and as long as my sister wasn't going to be alone I wouldn't want her to come to my ILs either. Everyone wants to see the babies and I wouldn't want to worry about my sister monopolizing their time or have to worry about entertaining her since she doesn't know my ILs well. Besides, both my ILs and my sister are weird and I just wouldn't want to mix them. It would be one thing if it was a big get together at your house with both families but just bringing your sister by could be awkward.
Can you blame it on space? Say something like "oh, their house is really small and will be cramped already, but you're welcome to come over on X day". Or say that everyone is really excited for your LOs first Christmas and you think it would be best to keep the celebrations separate. Just make something up if you think she's too immature to handle the truth (and that's said in a snarky way, my sister is very emotional and immature and I make stuff up with her all of the time).