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Well, your concern about your kids safety is Absolutely Justified, and i do not think any caring parent would have thought any differently.
Though , i would not want you to make hasty decisions on incomplete knowledge about your mother in law's husband's mental status, but being a Psychiatrist and putting myself in your shoes i definitely would be concerned , as Sexual Fixation ( fetishes) may not be restricted to one type alone , that is a person like your mother in law's husband who has a fixation for older women , may also be having other fixation as well. But untill and unless , you do not know the exact mental status of your mother in law's husband , i would say , that you do not draw any conclusios in haste, as it may spoil relationships.
BUT, I am of the opinion that , as a PARENT , you have the right to express your concern to your mother in law and seek for the exact diagnosis of her husband's mental illness, and if possible try to meet his psychologist , ofcourse in full knowledge of your mother in law and her husband, as this will straighten things out , and also indirectly will make your mother in law's husband a bit conscious about the whole situation , has he been thinking any differently and will act as a warning sign .
I know, that we shall not be prejudice about the psychiatry illnesses and shall only try to reduce the stigma attached to it, but it is our right to be safe , than sorry . And one thing i would definitely want to rule out is whether your mother in law's husband has overcome his fixation and secondly whether there are any sort of psychotic symptoms in him or not.
So, i would suggest you to talk directly , but tactfully with your mother in law , express your concerns to her, i am sure she will also be concerned about her grand kids safety, and then taking her into confidence you may ask about the diagnosis of her husband's mental illness and how well he has been improving. Untill , the time you are fully convinced that , your mother in law's husband is free from any kind of fixation for kids , i would strongly suggest you to not to leave your kids alone with him.
I hope my answer serves your query according to your satisfaction.