Our parenting style is very different from my in-laws (including sister and brother in law who have children the same age as ours.) I find it very stressful to be with them over the holidays. We talk things out a lot, use time outs infrequently, and generally have a "let's work together as a family" approach. They tend to ask for instant obedience and follow up with punishment (including corporal, though I've never seen anything I'd classify as abusive.) My own children get upset when their aunt and uncle speak sharply, yell, or hit their kids and I'm stuck trying to explain how they are still good people. My husband gets anxious that ours won't behave perfectly and validate our form of parenting in front of his parents. Any ideas for making this a more peaceful visit? (other than keeping it short -- which my husband resists because he likes his family. The are nice people, just a little harsh with their kids in my opinion.)
Discipline teaches children how to control themselves. Conversely, punishment involves controlling children and they learn to behave to avoid of repercussions, rather than internalize healthy values.
I can certainly understand why your children are confused, especially if their friends' parents also have healthier discipline styles, such as your own. Your kids sound like they've developed a sensitivity toward the discomfort of others, I don't doubt your parenting has attributed to that.
Disciplining in a way that instills fear causes anxiety in children and creates thought processes that can lead to unhealthy adult relationships-- ones based on intimidation rather than mutual respect.
If you prepare your children ahead of time by reminding them that sometimes Uncle Joe and Aunt Betty raise their voices, you can help decrease the apprehension your kids feel during these holiday visits.
Hopefully you don't have to stay in the same home as your in-laws during these visits, so that you can keep a safe boundary for your children. If you see situations begin to become loud, you can take your family back to the hotel, or at least out for walk or drive, then have a discussion about what's been witnessed.
Getting into a good vs. bad person discussion with your children isn't necessary or helpful. You can emphasize that in your family, you solve conflict through communication. You can say that not all parents know how to work out problems quietly, and that you also feel sad when Mary and Johnny are yelled at or hit.
I understand that your husband wishes for perfect behavior to prove your values. This isn't uncommon, whether the issue is discipline, grades or expectations for performance at Little League games. I would not be surprised if your told me your mother and father-in-law are critical about what they perceive to be "leniency". If this is the cause of your husband's worry, it's proof that the overbearing approach hasn't helped his confidence.
You have the right to speak to your in-laws and set boundaries about what you will and will not allow your children to be exposed, although sometimes the conflict this causes isn't worth the discussion. You have the absolute responsibility to define the boundaries in which your in-laws treat your children, including forbidding yelling.
If you have the family celebrations at your house, you can establish the boundaries of no corporal punishment or voice raising before the visit. Your in-laws might not appreciate these limits, although as long as you know they are not unreasonable or unhealthy.