I can completely understand not wanting to unsettle the baby to play dress up for someone's photo opportunity etc and I agree with you as you're 100% right, they're wrong.
From a personal perspective though; one of my sister's had her first baby last year (and we were all stupidly excited, we love babies in my family) but her husband is an only child with no nieces/nephews, quite stern parents and no experience with children.
Anyway, my brother-in-law announced to a room full of people about a month before my sister was due that "no women will be holding the baby"; We were all pretty annoyed about this, as was my sister who quickly informed him that her sisters, adult nieces and mum would be holding the baby when the time came.
He felt that the baby would become "confused" and "not be able to bond" with her mummy because other women were having an occasional hold of the much loved baby.
My point being that he was being beyond precious and completely unreasonable. I love my sister to bits and the baby is in part an extension of her and therefore we love the baby just as much but her husband felt it was necessary to impose a barrier between us and the baby.
Fast forward to now and the baby is nearly 8 months old, she's happy and thriving and we all regularly visit but my sister's husband actually hates to see us hold his daughter and at times when they've needed someone to look after the baby (When he's at work and my sister has an appointment etc) my sister has arranged for one of us to babysit and then his mother has arrived unannounced to oversee our child minding and the whole time has acted like "judge&juror", giving out orders like aggressively demanding that the baby is not picked up if she cries.
The thing is with babies some people get very territorial and insist on doing things their way and everyone wants to act like an expert on what's best for the baby without considering what her mum thinks is best first - If you don't want your child held for a genuine reason (like the ones you mentioned) then you are within your rights to say so and you should definitely stick to your guns but if you're intentionally being difficult (like my brother-in-law) for no reason whatsoever then you are being unreasonable.
My sister loves that we spend time with our niece, she also knows that her daughter is in safe hands; If the baby is unsettled when I'm there I'll often see to her to allow my sister to rest or get on with a task, if she needs a nappy change, a bottle or just some attention I will do it and I don't need to ask (My sister would be furious with me if I asked if I could hold my niece) - Dynamics are different in every family and you just need to find what works for you and lay those boundaries.
Don't be abrupt or spiteful about it though (I'm not saying that you have been).