Having Dad-in-law for dinner is great for starters. I think, because he seems to have so much of what he likes and uses....your imagination has to go into overdrive.
However, I have found that having "family" make a big deal of their special day is always appreciated and something they hold dear forever. The kids can each make him their own card, complete with pictures and a note in their own words. A framed picture of you & hubby & the kids would be nice. Serve his favorite meal, complete with dessert and let the kids sing a song to him that they have created.
No need to spend lots of money. I know if something like this was a Mother's Day Gift to me, i would be thrilled!
To top the day off, present him with a box of home made cookies to take home! Have FUN!