Do I have to have a rehearsal dinner, and if not, how can I convince my in laws not to have one?

Don't have the dinner. It's your wedding, especially if you are paying for everything. Your mother-in-law already knows she can put a guilt-trip on you, and you will give in. She's doing it again. You and your fiance need to make a joint decision and then stand up for your decision together. Traditionally, a rehearsal dinner should be given, but it seems that weddings become less and less traditional all the time. The one thing that should be considered however, are the other attendants in the wedding. If you don't want the traditional rehearsal dinner, you should provide some type of dinner, tails, or similar event as an alternative for those that you have asked to be in your wedding.