Loula, you do what suits you and your family. Don't worry about what your ILs think/say because it's none of their business darl. You sound like you're doing really well at reading and knowing what your little guy needs.
But to answer your question - when my Moo was little I would keep him wrapped and lay him on top of the blankets. I did this because it was winter and we had lots of doona and quilt on so I felt it was safer. Moo still loved it, I would lay him on his back with my arm under his head and sleep curled around him.
Now that he's older he comes into bed between us, under the blankets. He still sleeps with his head on my arm and I curl around him so his feet are touching my thighs and I rest my other arm on his tummy. I figure he can't slip down this way and we wake up in the same position anyway.
Having said all this, my Moo rarely co sleeps sadly! He usually starts to stick his fingers up our noses and in our mouths! It really is lovely though so as I said you do what feels right to you!