I wouldn’t leave your children alone on a plane. so many adults seem to lose any patience or manners when they fly.
if there was turbulence or an emergency landing for any reason, you wouldn’t be able to get to your children to leave the plane together.
and aside from that, your children are your responsibility. And if you could only afford 2 business class seats with your miles, would you have booked them for you and your husband and left your children in economy.
your parents-in-law are grown adults. They decided the cost wasn’t worth it to upgrade, knowing where you were sitting.
As a bit of a compromise - why don’t you all switch seats throughout the flight. So you and your husband could have some time alone in economy (not to be sniffed at!) while grandparents sit in business class with the kids.
then you and one child could switch with the grandparents. And next your husband and the other child.
essentially just play a bit of a seat swap game (if the airline will let you) and then everyone gets some time in business class.
but if that’s not an option, then you don’t need to feel bad about a thing. And prioritise being close to your children while you are in the air instead of worrying about other adults who aren’t your responsibility