To update.
After speaking on here last night and seeing all the opinions I sent a polite but carefully worded email back to in-law 1, saying thanks but no thanks.
In-law 2 phoned me this morning and we had a long chat. They were as upset as I was with the email from in-law 1 (and didn't think I was BU ?) and they are going to speak to them about it. Our correspondence will be kept confidential, as I really thought it would.
In the meantime in-law 2 is keen to buy the gift for H in it's entirety for his birthday.
So all appears to have worked out okay.
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Edited - thanks for all your replies and views. I think we can safely say that the consensus is that I AM being unreasonable.
I shall post a follow up and let you know how it gets resolved.
Thanks for not quoting - all a bit too personal.