Not out of line at all. You can probably find a mini fridge on craigslist and put it in the bedroom where they stay. OTOH, if you do this, you'd better never come home with McDonald's breath. On some level the sister has to know that she's letting her kids eat garbage. Giving up some square footage for a fridge to house that garbage might just put it in perspective for her.
What do you guys think? Is asking my wife to tell her sister to get rid of the crap or maybe just keep a few things in their bedroom (where I never go out of respect for their privacy) out of line?
Once they make the concession though, do show them you're serious. Wake up 20 minutes earlier in the morning (or more) to get in a short walk before your shower (for example).
Also, whether it's your weakness or not, spouses should support each other. If your wife can't see your weight as a serious medical issue, if you can, go to the doctor. S/he will certainly require you to lose weight whether you've become diabetic or not. Once the doctor says no junk food, the whole household will take it seriously.
Good luck to you. There are as many excuses to not regaining health as there are people. Don't let your family be your excuse. You deserve to be healthy.
"Right is right, even if no one is doing it; wrong is wrong, even if everyone is doing it." - St. Augustine