Do your husband's siblings and parents live nearby? You said that the oldest SIL llives an hour away. How about the others?
Is your husband's family the kind of people who really want to be at every birthday? Do they attend school functions like plays?
Just remember, it's ok to keep things simple. And also remember, you're establishing a precedent here. Birthday parties can get more and more expensive, and more and more involved.
Maybe for the 3rd and 4th and 7th birthdays, just keep things very simple. Have a cake at your house and just tell people they're welcome to drop by from 2 - 4 pm, for example. Give your birthday boy a gift from your family, and if others bring gifts, that's extra nice.
Consider telling all your in-laws that you're just having a very relaxed cake and punch, no elaborate games or bounce houses, and that they're as welcome as anyone to drop by.
Then, save these big parties, where everyone is invited, and you schedule the event at a party place or an ice rink or a bowling alley, for years 5, 10, 15.