I don't think that retracting that kind of an offer is really in your best interest.  You've agreed to help provide shelter for an entire family, which is one of the basic necessities of life. 

I do, however, believe that it's in your best interest to set some ground rules BEFORE they move in.  You and your fiance should draw up a list of expectations for them; if they are going to be living with you, they should be contributing, and they should know that this new living situation is not a permanent solution.  You wrote that they will be staying with you temporarily; how long a period of time do you expect that to be, and how long is the greatest amount of time that you're willing to allow that to be?  If they see an expiration date on the horizon, that might encourage your sister-in-law to behave a bit more graciously and both she and your brother to make better decisions.  Will they be expected to help pay any bills, and if so, which ones?  How big of a portion?  What chores around the house will you need help getting done with four extra people to take care of?  Will you be eating out often, or do you expect to cook and eat healthy meals at home?

These are all things to keep in mind.  Yes, they are your family, and that is incredibly important, but sometimes the best way to help your family is to be a little stern.  You signed contracts when you got the house, so take a cue from that exercise and draw up the expectations in a contract between yourself, your fiance, your brother, and your sister-in-law.  Have the four of you all sign it and date it.  Don't negotiate on the terms that you believe are important.  That way your SIL knows that you're serious and won't tolerate being taken advantage of. 

Also, if she's using her children to get you to do things you don't want to, you should be forthright about how you feel.  Spell it out for her; tell her in no uncertain terms that you don't appreciate her using her daughter to manipulate you instead of asking you herself.  If they're living on your dime, then they have to play by your rules, which makes it absolutely okay for you to say No.

Good luck.

Holy crap.

This is a tough situation. Your SIL sounds kind of like a bitch. You need to tell her "If you are going to be living with me, you need to go by my rules. I have helped you a lot so you need to respect me." She needs to have some rules, and she needs to have rules for her children.

If you don't get this worked out by the time you are getting married, I would suggest trying to get them to find someone else to go to.

you are just too generous..

when money is involved, there's never a happy ending.

Devise a plan and a time line for them to get their own place.  Put it in writing and have them sign it.  Don't retract on the offer, but if they fail to even try to live up to the agreed terms in the allotted time span, you can feel justified in kicking them out.

haven't you talked to your fiance about this?

that is terribly annoying. i would confront her and her husband both with all your problems. she's taking advantage of you, and you need to let her realize that you're doing this out of generosity, not obligation. she has no right to roll her eyes at you.

@JustGoneCrazy - I would draw up a tenant agreement with them just as if they were paying rent, but their rent would be $0 (or whatever you are charging them).  I think it is fair to ask them to contribute to utilities (split it based on number of people - they pay 4/6 because there are 4 of them and 2 of you), but keep rent free.  As @Honey14 says, you need to set rules such as who buys groceries, who is responsible for what chores and upkeep of the house and property, cleaning, cooking and damage to the house. 
The most important thing to decide is how long they will be staying there.  Confirm in writing how long they need (this can be negotiated, but must be a date) and hold them to it.  They should have a plan to get back on their feet and must be able to stick to it.  You do have a responsibility to help them, BUT if they don't do their part then you are perfectly within your rights to stop helping them.

@Honey14 - I agree

Don't let them move in with you.  It would be too much stress on both you and your new marriage and they won't learn a thing if they can just fall back on you. 

@JustGoneCrazy - Talking about expiration date is a sticky one but of course, someone has to do it.  They can't live with you forever and a couple and a newly wed does need some privacy in their own home.  If not, hell is going to break loose someday.

I would seriously sit down and talk with them about this.  My max would be six month but that's just me.  If any longer than six months, it will drive me insane.  Sorry, but with everything going downhill the way it is, you have to find any job you can take even if you don't like it just to put a roof over your head and food on the table for your family.  Hopefully this experience would teach them how to manage their money skills.

Charging a family who's in bankrupty?  Honestly, if they're not making any money, they better contribute someway in the house.  Either help you with the chores, buy and make dinner once a while, or just do something thoughtful for your fiance and you to show you their appreciation.  I mean, these things that I list are just common courtesy and any person who wants to show you their appreciation shouldn't have a problem with it.

As far as labeling food, I would say that's a no-no.  You could do that to roommates but family?  No.  I mean, it would be kind of ridiculous making a big scene of who ate your yogurt and so forth in front of everyone.  That'll make you look greedy and the evil eye monster.

Living with someone else is not an easy task and things will blow up from time to time especially if it involves money but just hang in there!  The time will eventually come when you will have your own privacy to your own home!  And I would seriously let them know there have to be respect shown to your fiance and you when you guys do move in together.

Good luck.

If I was in your position, I'll sit down with the brother and his wife and tell them what I will do for them and what I expect from them.

" I understand your financial situation.  I hope to see you getting back on your feet before Little Johnny turns 8.  To help you save money, I don't ask for any rent money and I don't want you to help pay for the electricity and water bills either.  If you want to give me a helping hand, keep the house clean for me and I'll be happy.

Now, I hope you understand my financial situation too. I can provide a place to live, but I cannot afford the grocery bills. We can either pool money and eat together or we can keep that separate. That is up to you. Also, I love my nephew and niece. They are important to me. Please do not use the little ones to ask me for this or that. I don't mind helping to provide their needs, but I will absolutely not spend frivolously  for their wants.

You are in a difficult time of your life and we will be supportive. However, if I feel something is wrong, I will tell you. Keep that in mind."

You can customize the above paragraph to your needs. "Little Jonny" and the "age" can be edited. Your rules about the bills and rent can be easily changed.

Think about what you expect from them and what you are willing to do for them. Then, go ahead and meet with your brother and sister-in-law.

even though your SIL is being a btch. think about your brother, and your niece/nephew. I mean it'd be ashame for them to end up on the street just because of your SIL. just be nice, and deal with it for a little bit.