Actually when we were in hossy with DD3 the mw did say it would be best for DH to change his shirt or take it off after a ciggarette before holding DD.
I'd maybe ask them to have a shirt or something to put over their clothes? I don't think you're being over protective, but maybe you'll need to prepare for the 'it didn't hurt you' argument...
This is your baby & they should respect your wishes. My dad & MIL have always been heavy smokers & neither of them smoke in their own homes if DD is there, even though they normally do.