A. You're lucky your sister lives nearby and that the two of you and your families can stay close. But your husband isn't being unreasonable by asking you to strike a balance between family time and extended-family time.
To you, these may be one and the same, but to your husband, they're not. He didn't grow up with your sister, so you can't assume he has the same familial ease around her. And while it's great for your kids to grow up with their cousins, they need time alone with you and their siblings too.
My husband and I have been talking about this same issue ever since his sister and her family announced they'd be moving to our town from out of state. So now we're in the process of setting up some guidelines: Friday nights and Sunday afternoons are our sacrosanct nuclear-family time; Saturday nights are open for pizza, movies, and board games with the whole clan. You and your sister could adopt a similar arrangement. You both might also plan more get-togethers alone and with your kids (trips to the mall over lunch, storytime at the library), without husbands -- they'll certainly appreciate not being dragged into everything. And don't forget the perk of having family nearby: Once a month, each couple might take a turn babysitting so the other gets some much-needed time alone.
With a little compromise and thoughtful planning, both of you should feel your needs are being met, which, I can attest, is 90 percent of a happy marriage. The other 10 percent is pure magic.