Every summer we have this scenario of being invited with friends on holidays.
To be honest it is an absolute no for us.
We like to relax on holiday, be silent, sleep, eat and relax when we want to, that is very hard when you are with others, if not impossible. We have a busy life, the only chance we have to relax and decompress, I don't think we could carry on without this time away as things stand.
We made an exception for my closest friend and went away with them. Never again. My bf and I have been friends for 30 plus years and know each other extremely well, but not to the point of the intricacies of their marriage. The arguements, the mess, the endless junk food, the late nights and drinking at lunchtime almost broke me. I am sure she thought we were too tidy/too organsied/too quiet/too healthy and too boring. People have very different ideas about what constitutes a holiday op!!!!
Rather than avoid the topic you would be better by being direct and honest. I think I have said in the past:
'thank you that is so kind but we are terrible company on holiday and sleep all day so will be going on our own' (make a joke of it, but be clear about the messaging)
'At the moment whilst the dc are so young there is no way you can go on holidays with friends until they are older/sleep better/easier'
'children are older and this year or next few years are likely to be your last as a family unit' Once they get older!
You will start to dread seeing her if you think she is going to mention going on holiday, so I would be straight and then she won't suggest it again