DH are both in agreement that we need to say she can't behave like that because it makes everyone else awkward but BIL has asked us to leave it alone and just ignore her because she gets embarrassed.
So your DH has mentioned it to him in advance of them coming this Christmas and this was his response? Or is it something he's commented on in the past when you or DH have moaned about her?
*I'm half tempted to just cancel BIL and his wife altogether if I'm honest.
I'm several years into this womans impolite behaviour and it's casting a bit of a dark cloud over Christmas because I'm dreading her making everyone else feel uncomfortable when she starts! *
Well it's a bit late for that. You can't uninvite them now, that would be incredibly bad form. Also how the hell would you start to explain that? 'SIL we've been mulling it over and despite having a whole year to think about it, we've decided we don't like the way you behave at our house, so we are withdrawing the invitation of Christmas lunch at 2 days notice.' 
So to me my two options are ring her in the morning and tell her to not behave that way or uninvite them both and tell BIL why. I simply cannot have another Christmas day like last years.
Option 1 is to shut her down the minute she starts, every single time. Be prepared for it and squash it the very second it starts, in the ways I described in my previous post.
Option 2 is get your DH to tell his brother in advance to tell her not to do it, because last year it pissed you off. If she still does it then revert to Option 1 and make a note not to invite them again. But you simply cannot uninvite them at this stage. That's very unreasonable.