Lavazz You obviously know this is a highly unsuitable arrangement. You know its not working. You know normal boundaries but don't feel you can stick to them in such abnormal circumstances in your house!
It is only 2 weeks (probably feels like 20 years!!) and I think you need to try hhard not to get into "extreme" decisions like don't want to be involved with grandson , just yet! This is an over crowded house, with a complete maelstrom of conflicting emotions, expectations and hurt .... and some deep tiredness to boot!
So ...on a practical level:
1. Decide what you want to happen regarding living arrangements whilst in your house and explain these clearly with practical but non emotional reasons. As in
- the house needs to be quiet after (9.00/10.00?) becauseI/.... can't function without enough sleep. Please ensure only quiet toys if ...is still playing ( ie no comment on their choices about baby bedtime, just about yours/ household members needs)
- "I feel you are not happy about the food I have prepared up to now for ....! I have put everything on the table so please give him what you think best, or if you prefers prepare something different. I don't mind if that is what you would like to do" (now this might well result in a crying baby but that is for them to deal with ...even if it is with another bottle!! Their choice!
- "As you don't like what's on the table today, do make yourselves something else if you prefer" and leave them to it!
- Bottles - don't comment other than telling them you have arranged a space in the kitchen for preparing bottles, for them to use!
-playing with grandson - "That's interesting that you think it is best he plays alone. Can you tell me why, I've not heard that before ....how interesting ...etc etc"
-knitting -" I'm sorry I didn't check what you would prefer before I started knitting for ....! Is there anything you would like me to knit for him?" If the answers no, keep knotting and say you'll put it in a charity shop when finished. Smile benignly if they ridicule it!!
All of this should be unemotionally expressed, practical and as factual as possible.
Regarding living with you and buying them houses etc - look directly at your son and ay "what on earth gave you the impression that I could afford that?" ...then at your DIL "Dear me, I hope he didn't give you that impression. How unfortunate!"
Regarding their living with you, there is already advice on here about housing/benefits etc! Gather it together plus any leaflets etc , sit them down, tell them a timescale for leaving and finding their own place , give them the pack of leaflets etc (have spare copies for yourself) and offer to babysit whilst they are arranging things.
I know none of this is easy but if you don't start to think of strategies to work your way through this, nothing will change. Take out all the emotion and resentment and stat being very practical Good luck! 