OP Here with the update -
We attended the Christmas eve dinner celebration. It was awkward to say the least. Think 10 adults sitting at the table (2 grandmothers also attended) with lots of silence. I tried my best to talk and ask questions to help keep the conversation moving.
Basically I can say we survived with less drama than I expected. My DH and I were prepared for lots of drama and prepared to walk out if necessary. I'm glad it wasn't necessary because the kids had a good time with their cousins.
However, even though the kids had fun I think it is the last Christmas eve we will spend with them. We will politely decline future "invitations". It was clear that SIL is not truly 'over it'. I am ready to let go of her. I think the correct ehell term is that I will 'drop the rope and stop engaging the crazy'.
I am looking forward to spending next Christmas with just my DH and children and creating happy memories.
Thanks again for all the support and good advice! I hope you all had a very Merry Christmas!!