Unless you raise your children in a bubble, they will encounter people who think differently than you do. Do they treat people who are different from themselves with compassion and kindness, or with judgment?

It's sad that your MIL is judgmental about gay people but the best way you can teach tolerance to your own children is to be kind to her while sticking to your own principles.

Re. the Covid - it's a little different when there is a health issue involved, that is where you need to protect your children. But, again, you can set the rules and if someone pouts too bad.

I think grandparents are a source of unconditional love and so unless your in-laws are abusive, don't deprive your kids of that relationship. However, be open with them and honest and answer questions to counteract any viewpoints you find racist or bigoted.