Yes..a bit unusual that too none of them seem to realize that they could be tormenting her soul by all their actions.
Understandable if its grief but this looks unhealthy for both mental and spiritual well being of everyone.
Many would expect you to sympathize but i guess you feel helpless and pushed to your limits.
Now you have to focus on your kids.
May be you can educate them by saying their grandma isnt all that normal now and unable to handle her loss BUT the fact is the person is dead and gone and what your children are witnessing at home is just human behavior gone haywire.
My reply might sound a bit unfiltered and no sugar coating becos i am going strictly medical here( i work as a doc)..so the same advice I would give to anyone who is facing issues as you.
Only you seem to be the sensible one cos you care for well being of your deceased sis in law and your family and your inlaws.
Partly a lot of us Hindus are bound by supertitious beliefs that a premature death is becos of some Pitr dosham etc.
To be honest in this present day a maternal.death post partum is rare if one had proper medical attention.
The cause of death would surely be known to you ..post partum usually its post partum sepsis which is again very rare if one has medical access unless a mother had a pre existing medical condition that was not detected earlier..hard to say anyway.
But you have to be firm here..from your words i can see that you are unable to express yourself to your family who all seem to be in a dissociative reality( forgive me if i sound harsh..becos as adults we can still programme our minds to know reality from unreality but kids should not grow up in an unreal situation)
So you must explain to your kids that what they see is extreme expression of non acceptance of humans to move on in life due to deep attachment..tell them its not insanity but just a misplaced understanding...then explain to them some basic understanding about life and death and tell them about rebirth etc.
Its not as if i feel no sympathy for your in laws but they should realize they have led their lives and their grankids are just growing up and should not be sucked into a portal of unreality.
Hope my advise helps..i know its blunt but to a great extent you might want to.consider my words.