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Our will stipulates that my brother-in-law (husband's brother) and his wife would take care of our children. They are very kind, finacially sound and have kids our kids' ages.
The only drawback is that they're non-practicing Catholics and we are non-denominational Christians and very involved in our church. Otherwise, our interests and lifestyles are similar.
Both of my sisters are in rocky marriages so I wouldn't feel comfortable having my kids live with them.
We don't have a Will yet, but we have asked my SIL and her husband and have told the rest of our small family. We don't want our parents because of age (although when we do get a Will, my parents will be second in line), and my sister can barely raise her own daughter. My SIL has two girls, the youngest only two years older than my oldest, her husband would be a great role model for my boys, and they are financially secure.
Unfortunately, they don't hold all the same values as us--the boys don't watch TV or play video games, we try to stress simplicity, and we are vegetarians. However, they are good people and good parents and the most important thing is that they grow up into good men. We realize that there are several ways to get there.
Also, our boys barely know them (my youngest has never even met them), but they are our best choice. We have spent their whole lives moving so much, that we are a bit of an island--so no close friends. We have one friend that is so close, though, that the boys call her auntie and know her better than either of their "real" aunts. She has lived with us numerous times and has helped raise them. She would be my first pick, but she isn't married and enjoys working seasonal jobs, and has never really wanted kids. If she got married and "settled down," I would ask her if she would.
The positive part of my SIL taking the boys is that we don't have worry about my MIL flipping out. My oldest asked about it already and I explained it to him, so even though he doesn't really know them, he can feel more secure in at least knowing. (We are going to vacation with them for a week this summer, though!)