S.C.
I really don't see how going to your parents and kindly telling them you'd like for your kids to spend time alone with them could possibly be taken the wrong way.
I think what happens in this type of situation is that the grandparents becomes more of an actual parent. You wouldn't normally leave your kids behind to spend time with your nephew, would you? That might be how they see it. But the hazard of this is that your children will grow up without really knowing your parents. And someday, your parents will wake up and realize they completely missed out on something incredible.
So I think it's really your obligation to encourage special bonding time between your kids and their grandparents. There might be the small risk of hurt feelings, but I think it's worth the gamble.
And I wouldn't even mess with talking to your sister. She's the most likely one to be defensive in all of this. Instead, talk to your parents alone and let them deal with her feelings.
Just my two cents...
Oh, and to Vanessa R who said "I think that this is your problem and your problem only."
That had to be the most thoughtless, unhelpful and unsympathetic response I've ever read on Mamasource. Congratulations.