Firstly, I just want to say how sorry I am to hear that your family are going through this sad thing at Christmas.
We lost my DF on Boxing Day last year, and it's a truly heart breaking thing to lose someone you love at Christmas. We are still coming to terms with it, and finding this Christmas very hard. I think now, for adults it's the worst time to lose someone, but actually as a child it's maybe the best time for someone they love to pass on, because at least in years to come they will have distractions and new memories to ease it.
Of course you are not BU to worry, but I hate to say it - YABU to not tell your children she is dying. Yes, you hope that she will make it until after Christmas, but if she doesn't, it will be such an awful shock, and that will make it worse.
It's really important for children to have the time to process what is going to happen, and to get the chance to say goodbye before it's too late.
We explained it all to DN, 8, and although he was extremely sad, he really valued getting to say goodbye to my DF in his own way before it was too late. There are some really good books you can get them to help you explain it, and it's also worth contacting Winston's Wish - the charity for child bereavement, who have a support line to help you. www.winstonswish.org.uk/
Sorry to write you an essay, and hoping so much that you get to have this Christmas before your MIL passes, but please don't let it come as a shock to your children.