If your gut is telling you something, don't just blow it off. However, you probably went to one single viewpoint when she came back around, and perhaps you would feel better if you started to widen the lens, this could add some clarity.
Maybe the last 10 years have been hard for her, and maybe she held your whole family responsible for your BIL and was punishing you all. But now she is hoping to have you in the kids lives.
As for hubby, sometimes people just look for balance. It always seems that if everyone is attacking one person, someone just has to add the balance back and stick up for them. Maybe it's as simple as that. Or maybe he is trying to be helpful since his brother was not, to sort of 'represent'.
See what happens if you start to go easier on her, maybe hubby will back off a little, too.
But if you don't like that he's around her, just tell him it makes you uncomfortable. No big exclamations or declarations, just "I'm glad we get to see the kids now and get to know them, but I don't like the idea of you being too close to her, it gives me the creeps". That should do it. So maybe back down a little bit, but keep your 'mommy gut' up.