One word to ANYONE in this situation. NEVER involve the police without the advice of a lawyer FIRST. You can find yourself with a totally destroyed life, reputation and future, from the very moment you do.
This is deadly and dangerous stuff. The courts bury innocent people under the jails daily. And they do it gleefully. Do NOT play the fool with this sort of thing.
Best advice yet. Possessing and distributing kiddie porn is a Federal Crime and no where near the issue of having regular porn. This is of such magnitude that calling the police without calling a lawyer first could indeed destroy the life of the presumed innocent In-laws if not handled correctly.