Generally, I think that would be a great idea planning wise, particularly with the younger kids. But I would still recommend the overnight (in your scenario, Thursday night) at DL for the one night. Having 5 kids under 5 and expecting them all to do DL commando style is asking for trouble, big time. Unhappy kids, who will most likely be very nasty by the end of day 1, and positively vicious by day 2. MIL will wonder what's wrong with you as parents that you can't control your children during something that should be so "fun" for them, and you'll want a strong drink by about mid-day on day 2! (Even if you don't drink at all!
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Even if your MIL is doing so much for you and the rest of the family for this vacation, you are expending a chunk of change yourself. I would seriously look for some compromise on this one, you don't want to spend all that money and have your children's experience to be negative.