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Because I think you were quite rude to lecture or shame her about it. The focus of baptism should be the child, not that parents, and many liberal churches will christen or baptize a baby without castigating the parents one way or another. Her marital status is really not the point.
I can also understand inviting the larger family, if you invite one relative, it's hard not to invite all of the other relatives as well.
That being said, tell them you can't host them, contribute to their hotel if you can afford it, and give them control of some aspect of the ceremony you don't care about. Maybe the reception? If they have other suggestions, just smile politely and say, "Thanks for the suggestion, I'll consider it."
Most of all, remember that this day is for your baby, so concentrate on making it a good memory to share later.