Well, first off, it's your wedding, so you should do whatever you guys want. You don't want to remember that special day as being something other than you had imagined.
Second - if your fiance's mother is footing the bill, you should take into account some of her wishes. I'm not saying you have to agree with her, or even do the things she wants, but make sure you think it through before you say no.
Third, just to throw this out there....one of the reasons you gave for not serving alcohol was the cost. My wife and I were not keen on having alcohol because we were paying for a large majority of our wedding and didn't really care (we enjoy wine and beer but didn't feel it was necessary) however, my wife's family really likes to drink at events like this and my parents really wanted to have wine for a toast. So we comprimised - my parents donated a bottle of wine for each table for the toast, and then we found a company who for a small flat fee would set up a bar, but all the alcohol had to be purchased by the guests. It actually really kept the drinking down to a minimum and I think everyone was happy - I didn't hear any complaints