Thanks for all the advice. To clarify a couple of things... No one is mad or upset. I don't think DH wants to give a gift so much as he feels obligated to give one. It's not like he has a specific item in mind that he really wants to buy for his brother. I am the one who usually ends up having to buy the gifts, not DH. Also, we've been married for quite some time now, and these are the types of decisions that we make together. It's not just his decision, because it's his brother. There are no financial difficulties that would prevent buying a modest gift. But, I feel like this couple has clearly sent a message that gifts are not necessary for adult birthdays. There are no hard feelings or tit-for-tat. I just feel that, following their lead, it isn't necessary. I'm more than happy to contribute to the meal by bringing a dish, which they are usually happy to receive.
In that case, I think it's perfectly okay, etiquette-wise, to not bring a gift. In other words, if he showed up without a gift and people whispered and pointed, they would be the rude ones (whatever consolation that might be). If he still feels obligated to get something, I would go with the "token gift" as sweetonsno suggests. Kind of baby-steps down from a full-fledged gift, but not quite empty-handed.
To me, bringing a dish is a separate thing, which can occur whether or not a gift is given. So I guess if your argument is, "You don't need to get him a gift, we're bringing a casserole," to me that wouldn't compute because I wouldn't see a gift for Bro and a casserole for Bro's meal as equivalent. But I think you could say, "No, we don't need to stress out looking for a great gift for him--remember your last birthday? They didn't get you a gift, so it seems like they aren't really into that anymore. How about a nice bottle of wine, as a token gift? Now, I'm going to go make that casserole..." That's just how I personally would understand it better.