It isn’t unreasonable it is mandatory. Even if they both were you bio kids you’d draw a line and remove one (perhaps to some care facility) if you thought the other was in danger. Put your foot down now. Say either she doesn’t come or you are gone. You are about to have a far larger problem on your hands than a divorce if you don’t. 

My first thought was that SD and DH need to move out. You & your littles need to be protected.

After scanning your prior blogs, I get the sense that you are possibly being disingenuous. You want SD GONE.  Period.  It seems as if you are throwing mud around hoping some of it will stick. (I may be wrong)

I have had CPS in my family life due to step-drama. SGS-12 is a sex offender & in a state hospital for the last 6 months. I do not make that comment lightly. Be careful of what you acuse & do not act upon ... and, be careful of "ignore-ance." Either way, this family seems fragile without targeted counseling. 

I'm trying to figure out why you even question if this is an "ok request". I agree with MrsStepMom - it is absolutly necessary if you want to protect your children. It should not be a "request", it should be a DEMAND.

What is your mother going to do about the inappropriate touching? Is it going to be reported? If sd is "allowed" to continue doing such things with no reports made, she will never get the help she needs and her behavior will escalate.

I absolutely would not want her in my home. As I stated in your previous post, there is no way you will 100% be able to keep your eyes on your children the entire time she is there. Think back to the news about the gymnastics coach - he was abusing kids while their parents were in the room and they didn't notice! If sd is by your baby, blocking your eyesight are you going to run over to make sure nothing happens? Hope nothing happens? You will drive yourself crazy and put your children in harms way if you allow her in your home.

I'm not sure how you are going to discuss this with your not so "d" h, since everytime you bring something up about his kids he turns it into "you hate my kids" but you MUST discuss this with him ASAP.

You married into dysfunction. BM and your DH created and participate in it. Yes their kids are a mess, but both parents are to blame for the current state of affairs.

You can't separate your DH from the dysfunction. You seem to have the attitude that everything would be perfect if only your jacked up skids weren't in the picture, but that kind of magical thinking won't help. Your H, his ex, and their kids are a black juggernaut of dysfunction and deviance that will hurt or consume everyone that gets close, including you, your kids, and now your little sister.

Knowing what you know, at a certain point you become responsible for subjecting the minors under your care to this evil. Do you get that? Turning a blind eye or trying to blame others won't change this fact. When you became a parent, you assumed the duty to care for and protect your child. Now you share that another child under your care has been victimized, and CPS is getting involved. Do you want to lose custody of your child?? No man is worth that.

Some level of "show me yours and I will show you mine" and even some touching is within the realm of "normal" in the pre-teen adolecent period. It is one of the those you know it when you see it things when it deviates beyond the bounds of acceptability.

Part of me is of the mind to come down on it hard and another part of me is of the mind that if not addressed carefully it can cause issues over what may be normal curiosity.