I totally agree with Mike - 100% no contact. These people are SO toxic that even <1% is still managing to poison your family.
Honestly, EveningRose, I maintain 0% with my alcoholic father, because even <1% can potentially send me into an emotional tailspin. I can't imagine the damage that <1% has on the mind of a developing child.
You're on the right track with new holiday plans. IMHO it sounds to me like your children are scared of this change, and the toxic things they're hearing from their relatives aren't going to help (oh man do I remember how PERFECT a toxic relative could make christmas sound, EVEN THOUGH you knew and experienced the same old sh*t show every year). Let your relatives play it up. It's a fascade; not something they'll be able to maintain for long.
Have more faith in yourself, EveningRose. You're climbing a steep learning curve with your family; it's going to be even steeper for your children. I say maintain your boundaries (no more in-your-house visits from toxic relatives), and let your children learn for themselves. Easier said than done, but hang in there.
A toxic family needs a scapegoat. They need a target for all their nastiness. With you out of the picture, the dynamics will be altered. It may be altered in such a way that it might only take one more christmas with grandma and grandpa for your sons to realize on their own that something's not right. The worst part is though, coming from a toxic family, you have to learn it on your own.
In the meantime, continue to build with your actual family the loving, supportive home you all deserve to have. The healthier your family gets, the more your wayward sons will be attracted back. I know you may be scared that you're going to lose your sons forever, but believe me when I say this too: the more learning they can accomplish about how to draw boundaries and assert their indentities with their toxic families NOW, the better off they will be as adults. By drawing your own boundaries, you are giving them a FAIR chance to learn what is healthy in an open environment.
Unfortunately the hard part is that they're all going to learn at their own pace, and when they're ready. So even though you're working hard, your progress will probably be way out of sync with theirs most of the time.