@tamarvin
If your children (& yourself) have lost their mother, it is more important than every that they have some routine & familiarity in thier lives.
I take it this is the house they lived in with their mother, yours is the bedroom you shared with your wife & so on.
It is NOT your fault if you have a greater income than your sisters family does & her children are NOT your responsibility.
You & your children should not have to live a 'lesser' life than you were, just because your sibling is not in the same financial position as you.
You need to keep having your takeaway/eating out treat with just your own children.
It is a thing that belongs to you as a complete family unit (& sharing it with your siblings family changes it) & without their mother, you & your children need it now more than ever.
You need to let your daughter feel safe enough that she knows she doesn't have to lose her privacy as well as her mother.
How much do you think it would hurt her to see another girl who still has a mother get to take over her stuff because that girls mother fought for her, while your daughter wonders if her mother would have had her back?
Same with your son, he needs to know it's HIS room & he can have it to himself if he needs that (although if he's okay sharing that's fine too, as long as it's his decision).
I do think if you make known plans to go away at Christmas, you might come back to find your daughters room suddenly has an extra bed in it, so I'd put a lock on her door.
Please don't take anything away from your children because of other people. They need you & the parts of your past (like Christmas traditions, the way you celebrate their birthdays etc..) that are links to their mother to take priority over your siblings family.
You need to matter in your own home too.
It must be hard for you & your children, to see another family with a mother right there 24/7 in the places that used to be your wifes.
Personally, I would be telling your sister that if she doesn't feel it's working out, she needs to be looking for alternative accommodation.
The council absolutely will not regard her family as in any need of accommodation if her kids have beds in bedrooms, the parents have a bedroom etc..
They will never be rehoused in those circumstances.
Next summer, if you normally go on holiday, will you be expected to change what you do because it's not what your sister can do?
Please, think long & hard about whether this situation is right for you & your children.
I say this as the 'poorer' relative, who has previously been widowed (many many years ago as a young woman).
My sister can & does do things I cannot imagine being able to do.
She has done things for her kids I will not be able to do for my own kids.
I'm not broke (we do just fine) but she is really wealthy.
I am happy for her success, happy for the life she has given her children.
She is happy for me & for my kids too.
But we don't have the same income, so we don't live the same life & I don't have the same choices as she does.
She wouldn't leave us starving if the worst happened, but she wouldn't give up her sons room to someone else even though he's at Uni now, because it's his room.
That is as it should be.
We are no longer children who should expect their parents to treat them equally so they get the same.
We are adults who should expect to live the lives we have made for ourselves.
Your sister cannot provide for her children right now.
It is not your job to take things from your children so hers can have more.