Just wanted to say I really sympathise with you, OP. I've had serious issues with my DPs for over a year (due to my mum being a selfish toxic narcissist, essentially, and my dad refusing to hear a word in criticism of anything she says or does). Finally culminated in me deciding to go NC about 6 weeks ago. So I understand how your DP probably feels, it's a really painful and complicated thing to have to figure out.
For what it's worth, I think you're doing the right thing for now to want to have distance from them all, and NC with the SIL. Sounds like your MIL has been trying to gaslight and manipulate you, to make you feel guilty and make it your fault that the kids are missing out, that you're the unreasonable one for saying that things have gone too far and the situation as it stands is unacceptable... This is the problem with this kind of thing, it's so long drawn out that it just wears you down, and you know you're hurt and angry but the reasons why are such a long list of small as well as big things over such a long time frame, it's hard to even remember it all when you ask yourself, 'Am I being unreasonable? Should I just let it go?"
I had a moment like that a couple of days ago, and had to read through the last few emails I exchanged with my mum, which brought it fresh back in my mind why I'd decided to go NC and that that really is the best out of a bad set of options, for now anyway. It means my parents don't see our kids, haven't even met our 2 month old, but I refuse to feel guilty because it's not my fault. I have to protect my family and her company (and dad's in supporting her) is so toxic.
You're doing the same, protecting your family. Don't let anyone manipulate you into thinking that unacceptable behaviour is somehow acceptable, or that unreasonable personalities should be allowed to dictate what you should consider to be reasonable.
It's hard and it's painful, and yes it's a situation that drags on and on, unfortunately... But you just have to deal with it the best you can and protect your family from further hurt. As long as you are always open to the idea of restoring the relationship (if one day they accept the things that are issues and take steps to fix what they can), then you have nothing to feel bad about.
Hang in there OP. And grats on your baby, and lucky you for having such a loyal DP. Reasons for joy!