My home is my home, if my kids want to put me in charge of their children for a time, then its my rules. They know how I treat children, so they have the choice if they want to take them somewhere with healthier eating and midnight yoga then they are free to do so.
The kids do get away with more here because I have the time to supervise a lot more creative play things and story telling and so on, that is no secret. Sometimes we play games and say 'don't tell mum or dad' the kids know full well this is part of the game and often tell on me as soon as they can......all part of the fun. My jumpolining on the bed raised a few eyebrows I can tell you when it came up for open discussion..........
I don't think it sets them up for a lifetime of deceits or failure to whistle blow when necessary, they also learn from all of us that kindness is important and doing the right things when needed.
I would caution against whistle blowing for anyone, we have legislation to protect whistle blowers, which is totally ineffective and many decent people never work again having done the necessary.