So originally, FILs said they would cover the rehearsal dinner. We discussed the list with them, and the final number came out to 28 with spouses and children. They agreed that cutting anyone would just be rude.
Now, they have decided that the cake is "more important" to them, and they do not care about a rehearsal dinner, so they will pay for that instead. Obviously, the two are not equivalent. We expressed to them that they did not have to pay for the cake in order for us to take their feelings into account, and that we certainly had it covered. They insisted, and I sort of got the impression that they might not feel comfortable with the cost of the rehearsal dinner. I totally get it - even at the inexpensive place we chose, it will be around $18-20 per person, mostly because you don't take people out to dinner and tell them only to drink water.
Now, I would certainly love to hear opinions on how to deal with this, but I feel that the ship has sailed. Rather, I am wondering the etiquette on changing the dinner to be family only. We really cannot afford 28 people since our budget is tight as it is, but the 11 family members are definitely manageable on the budget we had set aside for cake. We think our friends will probably understand, especially since we plan on covering hotel cost for Friday night (before this even came up), and would set aside time to thank all of them specifically and maybe have a drink together.
Any thoughts? Is this awful to do? No one has yet been invited to this dinner, so there won't need to be any invitation revocation.