Honestly I think personally I would just say forget it to even having them (a)host the party at their house and (b)give the 5k towards it. Maybe you can find a nice hall or another location to have it at, take out a 5k loan, and have the reception the way you want to have the reception. Allow them to attend as GUESTS not hosts and that should get the point across. This is your wedding, you only get one, so you should do it the way you want to. $5000 in the greater scheme of your life, as well as your pride, is not a big price to pay. You're not children who need to be taught a lesson, you're adults who were given an opportunity and a gift by them. The "gift" of helping with the AHR shouldn't come with limitations. Stand up for yourselves and don't let them do what they want. The party isn't for them, its not for their friends either, its for you and Kevin to be celebrated for coming together in marriage...and it should be done the way you want it to be done. If your FMIL wants to have a party of her own, then she can do that.
I just read throught the whole thread and I'm fuming (so I can only imagine how you're feeling). I'm a pretty forward person though, and I don't really forgive easily, so obviously take my advice with a grain of salt because it might not be condusive to your personality.
I just don't think that at this point anything good can come of continuing to have the party at her house. Either way she wins on this, and gets to treat you and Kevin like children. I would text her back and say "Words once spoken are hard to forget. They leave a lasting impression, and having them in black and white in emails isn't something that you can just take back with an apology". Then I would call around and see what venue would be open for the time and date that you have your guests arriving. Book it, move the vendors over, and send out a quick card to your guests informing them of the change. I think this will allow you to have the AHR of your dreams, without feeling guilty or pressured to cater to someone else's vision (namely your FMIL and FFIL), and it will show them that you're adults who can make your own decisions. Its not fair that your relationship with them is predicated on whether or not you adhere to their wishes. They should respect and understand you regardless. Maybe its them who need to be taught a lesson.