If they're staying in your house, I would interpret them being put in the living room as making sure they understand you don't want them there. Which you don't - and that's fine, but you need to say.
DF said he wanted to come and visit and I said 'lovely, but please understand I have no leave left, DD is at school, and we won't be able to put you up here because I would murder you because of the need to keep our work/school routine. We wouldn't be able to see you Mon-Thurs, would love to spend Friday night and the weekends with you'. He was able to afford a B&B so did that, plus a mid-week trip somewhere he wanted to go.
However, that was DF not in-laws, and we have the sort of relationship where I can say that.
How often can they visit? What can they/you afford? If this is the first and last time they'll see their grandchild for a few years then I think you need to make more sacrifices than if they can pop over fairly frequently. They are your child's grandparents (and possibly aunt). Presumably you want your child to have a life-long relationship with them. That won't be helped if you explode with stress, but equally won't be helped if they feel unwelcome.
For me, if adults come to visit then children do vacate their room if necessary. Yes, it's their room, but if there is no spare room it is usually less disruptive all round (including to the parents) than the hassle of tripping over people in the living room, having to go to bed when they do etc. That seems normal to me - when friends come because I don't feel the need to murder them DD bunks in with me, and guests have her room (bunk beds or the floor). I make it clear in advance, and then some choose to pay for something more luxurious.
I suggest a frank talk with DH (and he needs to step up and be at home for a good chunk of this), and find a way that they can spend some time with you, and some time away, alternatively, if his family can afford it and it wouldn't destroy relationships, they book somewhere near. (Or do you find you've already booked weekend away with your family, but that's great, DH can have some quality time with his family while you're gone
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