Oh, Panda, I am so sorry! My heart aches for you! It seems as if you are "getting it" from all sides - ODD (oldest dear daughter) and SIL won't let you in their home, DH (dear husband) won't allow the GC (grandchildren) in yours, but ODD wants you to see/expects you to watch the GC (and I'm sure you want to, as well). What a dilemma!
I'm not sure I have all this straight though. Let me see if I understand the following:
"She argued with her younger sister, but because I didn't pick a side we became a bit strained leading up to the wedding. After trying to reason with her as she and her husband to be banned my other daughter from the wedding, she then told me she wasn't bothered if I was even there or not."
Ouch! It seems as if you (wisely, IMO) refused to choose a side in her argument w/ her sister, your YDD (younger dear daughter). Apparently, ODD was a little bit miffed that you didn't pick a side/her side. Then you lost your resolve to stay out of the middle - and took YDD's side, which made ODD really angry. I totally get your defending YDD since they were trying to cut her out of the wedding. That is so sad, and would be hard, IMO, for any mum to just stand by and watch. But since ODD was already irritated that you didn't stand by her in this argument, it's not surprising that she got even more upset when you spoke up for YDD.
So sorry about this. And regardless, I think it was selfish of her to ask you to watch the GC while she and SIL were on their honeymoon and then cut you off for 3 years afterwards. Unless... was there some issue about anything that happened while you were watching the kids? Or did you have words when she and SIL came home? That might explain it, but it is still sad, IMO.
"Finally contact was made but even after still trying hard and still taking crap things have again become tense"
So glad contact was re-established! Perhaps you're trying too hard though? Also, do you feel comfortable telling us what the "crap" is that you've been "taking?" That might give us more insight into what's going on and what you might need to do.
I'm glad you're getting to see the kids often though I'm sorry SIL won't let you in their house. He is probably still angry about the past. Have you tried apologizing for getting in the middle? (I wouldn't apologize for defending YDD, just for "getting in the middle" of the drama.) Or if something else set him off, have you apologized for your part in that? And let him/them know it won't happen again? This may be all that's needed.
As for the cost of caring for them outside of their home. Have you tried asking ODD to help defray the costs? If not, do you think she would react well if you did?
How about if you set some boundaries on the amount of days and hours you can watch the kids? Does she need someone to watch them because of work? Would she get angry if you cut back? Cutting down on how often you take them might solve some of the problems, but I realize it could also lead to another CO (cut off) and you don't want that.
As for DH, I'm a little surprised that he won't let your GC in the house just b/c of a few broken things. Is he their bio GF? It's your home, too, so I think you should have some say, as well. Maybe you and he can compromise on how often they come over and what rooms they can play in? Can he suggest/help supervise some outings if he doesn't want them in the house?
Hope I'm not asking too many questions, just trying to get a clearer picture...