It seems you and your wife have tried everything aside from some therapy so your wife can understand it's okay to let go in fact it's very important for her mental health to let go of such hurtful people even if they are called parents.
It reminds me of the analogy of the patient telling the Doctor; "Doc when I do this _____ it hurts". Doc takes a look makes sure nothing is wrong and tell patient; "Stop doing that!"
If it hurts stop doing it!
Cut off all contact, change your phone number refuse mail from them and block them from your email addresses take whatever step you need to do to keep them away. Even an animal in the wild protects their family from intruders and harm. Aren't we a step above the animals? Yet we get sucked into the emotional aspects of wanting to please them when we know instinctively there is no pleasing them. There is nothing wrong with your wife, nothing wrong with you, your children, you are not the problem, they are.
The phrase TOXIC means poison, think of them as poison and just don't interact with them, period. I know it's easier said then done but you have each other to lean on which is a good thing. Be creative in ways of thinking of them as toxic, like calling them the toxic parents. It also helps to put a picture of them up with a big red circle and a line drawn through it or at least to think of them mentally that way if the picture is a bit over the top for you. Use your imagination......but help each other through it and think of all the good reasons you are doing it. Make a Mission statement and a list of positive statements to remind you of your mission.
This didn't happen over night and it won't go away over night, it takes work and diligence and the amount of work put into it depends directly on just how important it is for you to have them gone from your life.
Hope this helps and good luck!