"They are her carers and you can't just go away when it suits. Very often, in the case of Parent and Adult child, they aren't viewed and don't view themselves as carers. They are in a nightmare position, because they can't cure or abandon their mentally ill Daughter."
^ This. With bells on. Your SIL is obviously very unwell - her fixation on you, her constant refrain that you have caused her to be single/unemployed and broken her family apart (rather than, actually, adding to it with your own two children), her aggressive and violent behaviour towards you... Her parents are stuck. They can't^ run the risk of either leaving their adult child alone, or aggravating her illness/risking physical harm to their DIL (ie, you) and their grandchildren.
My own adult child has severe MH issues, and... every time her illness peaks, it's me who is left to pick up the pieces. Although, I do agree, having watched my daughter go from physically assaulting me to simply being verbally aggressive towards everyone who doesn't fall in with her view of the world, that it is a choice. Somewhere, through or perhaps despite the illness, they know what they're choosing to do. Sectioning, however, is nigh on impossible where we live, so I do suspect that your SIL is more unwell than you're actually aware - after all, why would you when you chose to ignore your PIL for 2 years, because they made the choice to try to cling to their version of reality where their daughter isn't mentally unwell? Your PIL need support, and, sadly, it's lacking for those of us who are unpaid carers for our unwell adult children. My daughter's 23 years old, and I can see the future stretching forwards - and it's one of constant anxiety that she's not attacked someone (verbally, emotionally, physically), that she's not going to try to harm herself when others choose not to fall into line with the rigid way her brain works, and that she's generally okay. I'm very fortunate in that I have a close network of friends who bolster my resources and keep an eye on her outbursts online, but I also know that I am one of the lucky few in this regard. Your PIL sound as though they have their heads in the sand, somewhat, still, and that's probably because... at the end of the day, they're possibly reeling in shock that their baby is so unwell.
Having said that, though, no; I don't think your baby and older child should be around your SIL. As she has assaulted you, revealed herself to hold you solely responsible for the way her life has turned out, and claimed that you've broken "her family" apart... I'd be concerned that she might try to harm one of your children, simply because they're 50% you. Your husband needs to have your back and protect his family (ie, you and your children) - but he may well also have his head in the sand when it comes to your SIL's illness. Living 9 hours away has afforded him the luxury of not seeing her decline on a daily basis.
, OP, because it's not easy. But you're protecting your children from potentially witnessing vicious, violent behaviour/language/claims. Your PIL may even be grateful if you stand your ground over this.