OK, well your SIL is winding you up and you are falling for it, and between the two of you you will be tense as anything by the time Christmas comes, and you will be on Red Alert checking for the slightest infraction.
She is being snarky and obnoxious, but you sound very uptight.
And it is different with older kids. 2 year olds don’t stay in the mat, 4 year olds shouldn’t have to. Saying a 2 year old would be ‘swiftly punished’ for stuff that 2 year olds don’t understand us a very harsh regime.
Cover your furniture with throws. (Spills WILL happen), and other protective measures.
But in the end you and SIL (not sure where the blood sibling is in all this: maybe they should mediate/ take some responsibility) and you have different priorities. You have a home that is more important to you than time spent as a family on holidays. That you will protect by ‘swiftly punishing’ your 2 year old.
That may not be a home that is ideal for hosting a big family Christmas with small children. Do you want to welcome people to your home, or show it off?
I suspect SIL suspects the second, and she may have picked this up, especially as Your disparagement of her ‘lifestyle ‘ (perfectly normal choices) seeps into your posts.
I am not against bringing children up to behave, my own are well behaved, but you do seem unrealistic about older small children.
A relaxed happy Christmas will depend as much on you unclenching as it will on SIL keeping conk on her kids (again: where is their Dad in this?).