I think your brother has behaved poorly.
First with the announcement. No problem doing it the way they wanted, but they should have organised that themselves rather than trying to disinvite your family from a planned event.
I’m pretty relaxed about wedding etiquette, but think that not inviting a sibling’s spouse is a strange thing to do. He’s making it clear that he’s not that bothered about family. He should have, at least, had a private word with you at the outset about why he wasn’t inviting your dh. You would probably have still felt sad, but it’s better to say something first rather than not receive an expected invitation.
You mentioned in another post that he hasn’t been very interested in your kids. Some people aren’t that interested in other people’s kids, even their own family. I can see how that’s hurtful for you, but as above, he’s obviously not that big on family. I’d say that this particular event doesn’t sound very child friendly, so I’d not be that bothered about them not being invited.
If I were you, I’d go and smile and be friendly. But I’d privately feel sad that my sibling didn’t really care about my family (or didn’t care enough about me to pretend to care for my family).
I don’t think your dad should have refused to go to the first wedding and I think he should go to this party without comment or complaint. I understand how he feels, but he also needs to plaster a smile on and get on with it.
Re the money: I think that money given in these circumstances can be used as a contribution to a wedding or as a gift for getting married to be spent in whatever way the couple choose. So I don’t think your brother was wrong to spend it on other things, but it would have been polite to explain to your parents that they were not planning to spend that money on the wedding. Taking 5k then saying they can’t afford to include your husband doesn’t come across well. I think the MIL offering the money back is weirdly passive aggressive.
Your brother’s behaviour is a reflection on how he views wider family - it’s just not important to him and now you all know that. I wonder if he will expect his new wife and any future children to be included in your future events? Or if he will be ok with you showing them the same lack of consideration he has shown your family.
BTW, I totally understand that it’s fine to have exactly the wedding you want. But I think he went about it clumsily and without care for wider family feelings. That in turn caused a rift with your parents who reacted to his clumsy behaviour with poor behaviour of their own.
As I said above, I’d go and be pleasant, but I’d be sad to know that I didn’t have the kind of relationship with my brother that I thought I had. I’m sorry you’v Had a bit of a kicking from some posters, but I think it’s normal to feel sad about this.