I wish that I could say that this was a single event.
Unfortunately FIL is one of those people who has to be the center of attention. He will not go to any of the grandchildren's events because as he put it, " There is no one important there".
I think that I would drop out of holding the family event this year. With the stress of your son's surgery and your grandfather's comments, you may not be in the mood to host a big celebration. Anyone who cannot understand that your first priority is your children and not providing free food and entertainment does not deserve the pleasure of your company or your hospitality.
As for your FIL, I suspect that he will eventually get a taste of his own medicine. Eventually his grandchildren will figure out what he thinks of them, if they do not know his opinion already. When your FIL is older, he may decide that he wants the company of his grandchildren but they may find more "important" people to spend their time with.