We do know that FIL has not saved up for this:
His dad was quite open about it being an open menu, everything will be covered and that it is going on the line of credit
He has a plan for payment. So, we are also to assume that he doesn't also have a plan for paying the credit card?
I'm not saying that he's definitely making a financially wise decision. I am saying, it's no one's business.
By completely technical etiquette, I suppose you're right. But immediate family interactions and close friendships are not governed solely by formal and technical etiquette.
You keep bringing up this idea that FIL knows MIL better than the OP and her DH do, and that is just not necessarily true. Heck, it's not even *likely* to be true on the subject of finances, given all the information we have.
My parents have been fighting about money, rather intensely, for some time now. I know my mother better than my father does on a whole variety of subjects. That's just a fact, and one that my mother says often. My parents are nowhere near the tight financial situation the OP's in-laws are in, but if they were I can predict what would happen:
My father would puff out his chest and plan this ridiculousness and feel like he was the benevolent provider. My mother would walk in, immediately be overwhelmed with how much it was costing. She would quickly do mental calculations in her head, run those against their current debt, assets, and income, and within 10 minutes she would be in the bathroom hysterically crying. The party would be over, my mother would feel publicly humiliated and betrayed, my father would be completely confused and feel that no one was properly appreciating his amazingness.
It would be a disaster of epic proportions for which my mother might never forgive my father.
Whatever formal technical etiquette might say, there's no way in hell I'd allow my mother to go through that public humiliation and panic. No way in hell. Because I love her, and she's my mother, and I know her. And if that made my father feel like I was stepping on his toes, so be it.
Because what's more important here? That my father gets to feel like King Kong for all of 5 minutes? Or that my mother not feel publicly humiliated, betrayed, and see her financial stability ruined? That's an easy question for me, and I honestly don't think Miss Manners or Peggy Post gets a say in that.
If I wasn't sure how my mother would respond, I'd keep my nose out of it. And if it was anyone other than my mother, or someone I was similarly **intimately** close with, I'd keep my mouth shut. But for me personally, I know exactly how my mother would feel and react.