My first thought is "Wow, are your In-Laws five or something?", because this sounds like one of my preschoolers! ("She can't sit in that chair. It's mine. I sat in it for three minutes two and a half hours ago!" ...I hope this makes you laugh, not cringe.)
You know what? She's said what she wants, which I think is likely universally regarded as ridiculous. If it were me, I'd treat it as I would a preschool situation: don't bring her attention to it. She's not the Queen and so you are better off just dropping the subject for now. Let your own family (your own parents, etc.) decide what you want to do WITHOUT factoring this strange request into the mix, and just don't tell her. In fact, unless you've already shared this with your own family, I wouldn't. It would just be giving it too much attention. If she asks later, you can just explain with a straight face that your family makes their own plans, and they wanted to do this for their vacation this year before she made her edict, and when you mentioned it to her, you weren't asking her permission, you were telling her what the plans *already* were.
It may be that she's like a lot of people who 'discover' a place before it peaks, and wants to keep it the way they liked it, smaller and less-known. The mindset then becomes "Everyone else who comes after us is an interloper/ruining it for us. Renters aren't committed to the area, etc." Of course, if you want to make her feel that this isn't true, you could do some small things, like take one morning to walk around and pick up the trash left by tourists. Take pictures of that to share with her, and perhaps she'll lighten up and understand your family cares too? Odd hoops to jump, I don't know, but it is an olive branch she won't dare to argue with.
But until you actually go on this vacation, try to avoid talking about it if you can. Maybe this is about something deeper, about having to share their son and grandchildren with another family? They'll have to figure out for themselves what the deeper feelings are, but I'd just stay non-confrontational about it, and just not bring it up for now. (Distract and redirect! Just like we do with toddlers!)