Don't take offense....first time parents...1. don't know the amount of bedding that is needed for just one small baby....2. usually want everything to match (that changes as soon as there's no time to worry about those trivial matters) 3. have no idea of the amount of work that goes into making a quilt.
I would make a floor quilt for the baby. Make it in the colors for the nursery but tell the parents that it is to be used when the baby is set on the sofa,floor or on the grass. I guarantee that once your SIL sees that "homemade" quilt, she will begin to appreciate your work.....and your quilt will be the hardest working piece of bedding in the whole nursery.