Mil finds chaotic get-togethers with loads of family in one house loads of fun
And consequently thinks it's fine to change arrangements without consultation, on the assumption that everyone else will too! I'm sorry, no matter how nice she is, she needs a wake-up call.
"Not rocking the boat" is all very well, but you're not the ones doing the rocking, MiL is, by gaily inviting another adult + 2 kids along. She's downright rude, imo, and very presumptuous.
I think a polite chat along the lines of "We want a peaceful holiday and the addition of another adult + kids and consequent change of sleeping arrangements won't give us that. You should have consulted us before you agreed to it. This is not what we signed up for" should do the trick, although DH should be the one to have it.
I think you're being very measured, OP. I'd be fucking ballistic!
Holiday places are always a bit cramped when they have the full number of occupants imo, adding even more sounds hellish. We always opt for somewhere with space to accommodate at least 2 people more than are actually going, so everyone has room to spread out. As several PPs have pointed out, they usually provide towels, crocks etc on the basis of one of everything per person. You're going to have to take it in turns to have a cup of bloody tea, have a rota for sitting on the sofas and getting everyone round the dining table will be like playing Tetris.