When people with little kids come over I keep my dog in a different room or on a leash (for now at least). I do this because she is still a puppy in training (can get very excited) and because you don't know what the little kids might do.
I don't want to be responsible for an injury caused by the dog because the little kids were annoying her. You don't know what they might do depending on their last experience with a dog.
I'm very surprised that your SIL lets her dog around the kids if she is going to growl at them. I would tell her (nicely of course) that you value the safety of your children and that the dog should not be around them if she is going to behave like that. Don't take your dog over, it's her dog and her problem.