Maybe something about her presence reminded him of his Grandma (your Momma), who may have been boxed in a little mold, as were most of her peers due to the over-sociaization and the social limitations of her era, but who may have been a very loving presence that brought out his protective instincts and made him feel like a BIG MAN, or let him feel really loving. Lots of "real men" enjoy that one-up, one-down kind of power in their romantic parters.
(I can't believe I am talking about Carmelo's Momma on this thread!

)
It's not unusual for a man to "pick" or be sexually attracted to a woman who is very UNLIKE his mother.
I know you love your wife, she sounds like a wonderful partner for you, but other men (including your sons) might be looking for other attributes in a woman or a wife. It's just possible, isn't it?
You knew what you wanted in a wife...grant them their beingness...maybe a "shy woman" fit the bill for them, or rocked their world, or whatever. It's their choice, Carmelo.
Maybe "Grandparents from hell" (LOL!)
and a wife from hell would have been much too much for them.
Bold floats your boat, honey, and your wife's, so it's a good match. Other independant adults are entitled to pick the partners of their choice. You did raise your kids to be independant of you, didn't you? Not little clones of the Grandpa from hell?
You are a big enough being that I can challenge you in this way: take a look at your own feelings about being related to or Grandparent of a shy or wimpy kid, a fearful or nervous kid, a physically clumsy kid, a not-so successful kid, etc. How accepting and tolerant are you of this? How unconditionally loving are you of failures to live up to your expectations of them? We all have expectations for the people in our lives, and they have to shift depending on the individual basic nature of those people. If you can do it, (and I think you can!) put that unconditional love and acceptance of them into practice...That would be awesome, Dude!
I don't defend raising overly fearful children, but many people who mean well err too much on the side of caution with young children, and it's a common enough mistake to make. Kids usually grow out of it once they are in school and scouts, sports, clubs, etc.
I don't defend a passive lifestyle, either...but those kids just might learn something from Court t.v., if it's discussed with them in an intelligent manner. Being babysat with Grandma with the tv on is not the worst fate that can befall a child...it's not how you would like them to spend big chunks of their time, but it's not a tragedy, either.
It's clear you've got a lot of negative judgement and distain for these in-laws, so take a good look at what you are communicating to the daughter-in-law and your son in your meta messages to them. Go ahead and be the "fun Grandparents" who are really active and sporty, but try to do it without invalidating their own parenting style and choices too much, or it will cause resentment and foster more passive-aggressive behavior (what you have described in the daughter-in-law's past actions of self-sabotage) and attempts to distance or pull away. Your family is close-knit and partys hard together, and it might feel really difficult for an outsider who doesn't fit the family lifestyle to feel really safe or comfortable or wanted, a sense of belonging there. Try to experience their viewpoint a little, even if you think they are wrong.
I don't think you missed anything in raising them, they are just making different choices than you have made, or would make for them. Grant them their beingness, Dude!
You are a GREAT Dad, I know you can do it!