I don’t think you can blame the parents in law for wanting to be careful. This virus hasn’t got somehow for less dangerous than it was in the spring. And - depending on where you live, prevalence is still high in parts of the U.K. I don’t know how old your parents in law are, but for a man over 85 the latest estimates put the fatality rate at somewhere between 15 and 20%, and the chance of a scary and probably life changing stay in hospital about the same on top. Even for a 65 year old woman with no chronic health conditions, you’re taking a few percent.
Most people go to extreme lengths to avoid other risks of a much smaller magnitude in their day to day lives. So I really don’t think they are being unreasonable asking. If I was their age, I’d undoubtedly do the same. It is a more or less undisputed fact that several hundred extra deaths will happen as a result of easing rules over Christmas - This may be an acceptable trade off at a national level, but probably won’t be at an individual level.
That all said, clearly it’s not fun for teenagers to have been cooped up at home when there is almost zero personal risk to them from this virus. And if you are all genuinely going to be isolating for a week, that means no trips to the supermarket, no visits from the cleaner, etc. Things look very promising for an effective vaccine now - your parents in law could very plausibly be vaccinated by February or March. So while they may be keen to preserve the Christmas traditions, one compromise solution might be catch up over zoom this year and have a big family gathering - with a lot of the Christmas traditions - at Easter.
The testing solution would dramatically reduce the risks, but runs a small risk of missing the earliest stages of an infection.