I'm an only child and my 2 kids are my moms only grandkids. So I get that part of it. My mom also shops a lot for Christmas but the issue is that she gets ALL of us a bunch of junk we don't want or need. And she can't really "afford" to spend what she does, she's single and should be retired but still has to work at the age of 69 because she can't live within her means.
A few years ago I finally, nicely, tried to tell her that we ALL needed to cut back financially and we were going to be getting the kids only FOUR gifts each: a want, a need, a wear and a read. And we said that for that to work, she really needed to only give the kids 2 things ONLY. And we told her my husband and I didn't need anything but if she wanted to give us something, gift cards to restaurants and movies would be awesome since that's what we like to do on our dates. She was relieved and said she was "broke" so that would be great. I then jokingly said, well, then we will give you cash and you can buy what you want! And she was all for it so we did it! I hate shopping and I'm not good at it but buying the kids only 4 things, my husband a couple things and my mom cash REALLY freed up my shopping responsibilities and it was soooooo much nicer and less stress!
Then last year right before the holidays I stumbled upon "living simply". Google it. It really made me reevaluate every thing I have and every purchase I make. Since January, I have been downsizing EVERYTHING...including the people in my life that were not a positive influence for me. Boy has that been a change for the better!
So I'm telling you all this because it's time for you to have a serious talk with her. Google the living simply articles and read them, then implement them. That should solve the volume of gifts. If you downsize enough and donate what you don't need or want any longer, including her gifts, then she will likely stop giving so much on her own. But you have to warn her first.
As far as the trip goes...you had good intentions offering a local family trip. She wanted to go above and beyond like she always does. That does NOT mean you have to do what she wants. You need to explain to her that you can do a trip that is within your $500 limit and if she can't do that then you can't go. When you save up $5000+ for the big trip you will let her know.
Even if you guys went on a trip, any trip, she would still give you a bunch of stuff on the 25th because you are not addressing THAT issue with her. I think if you tell her you are simplifying your home and life and the things in it and want to teach the kids the same and she needs to respect that with her gift giving then that will mean you are giving her boundaries. If she chooses to not respect the boundaries by buying a ton of stuff, then you can donate the excess GUILT-FREE. And if she asked what you did with Suzie's 10 foot teddy bear, you can honestly say that it was too much and you asked her not to over do it so you had to donate it. That is the consequence of the decision she made.
That is what I would do but that is the path I'm on now and my mom was all for it when I talked to her about it. Now with the holidays coming up, I'm going to remind her not to over do it and we are doing the 4 gifts again and that's it. I hope you find something that will work for you. Good luck.