If the lack of trust in this guy is already there, then don't escalate slowly, immediately start a cold war.
Make sure your parents are on the same page by asking some clarifying questions:
- why isn't the boyfriend isn't moving back with his parents? Because if his family will not take him back, your family shouldn't either.
- are they married? do they have kids? do they even have jobs? establish the traditional context of why parents should not assist the daughter's boyfriend.
- Are dogs are cheaper than opportunistic criminals? if his parents cannot take the dog, you can...
- why not charge them about 1/3 rent costs? because this forces them to have work which gives them income to move out later
Be an actor and not an openly-hostile person with sis and her guy, because you do wish them well, as long as it isn't costing your parents financially and stressfully.
If he is going to stay, point a web-cam with motion-detector software at your door, so you have video if he gets into lock-picking, etc. It will greatly help if you need to involve the police.
I have seen three instances of couples moving back to a parental home and they didn't move out until there was stress and financial conflict, because their intent was not to accumulate money so they can move out later. In two of those cases, the couples attempted to blame the parents for being the bad guys while they were being kicked out.