In that situation, if I loved it, I’d buy it.
Before reading all of the details my hesitation would have been diwn to firstly, her children and DH - how they’d feel, but as they’ve moved overseas they won’t be turning up for play dates etc.
Secondly, if I was buying from her DH, being sure I was paying market value for it because I wouldn’t want to pay less than it was worth, but as they only rented it and you’re not buying from him, then that’s not an issue.
Who has been living in it then past 3 years? People without kids at your kids school(s)?
I would do as has been suggested. Totally embrace it, make it yours - but plant a tree/rose bush and have a few photos of her around - then it’s acknowledging it was her home, where she died, rather than it seeming like she’s been forgotten.
It might be very difficult for her very close friend(s) so I would definitely mention it to them before it’s public knowledge. In fact, if I was very good friends with someone who was her very good friend I’d talk to them about it first. If it was one of my very close friends I wouldn’t buy it, if it was going to upset them too much to visit me there, but, I do think the fact they rented it does make make a bit of difference. I’m not sure why, because it was still their home, but it feels like slightly less of an issue somehow.
As for people still calling it ‘friends’ house, that wouldn’t bother me and it’s natural at first (whether she’d died or just moved), gradually it’ll become ‘IrisFamily’ house.
Also, as they rented it things probably weren’t done by them or their choice and as it’s been rented out for 3 years since she died, somethings will already have been changed, so I wouldn’t feel like I was being horrible changing things.
I hope you buy it and are happy there 🌷