I like it a lot. I have two suggestions.
One, I'd find somewhere near the beginning to put something in about "thank you so much for your generous (no matter how I spell that, it looks wrong....) gifts in past years". You know, acknowledge their generosity (that spelling thing is making me nuts....). Then go on to the parts about having limited space for toys, etc. and wanting to focus on family traditions, outings together, etc.
Another idea is IOUs for special outings. I always love it when my sister gives me IOUs for a day of babysitting! Or a "fun day out with auntie" type thing. Or tickets to a concert or sporting event. Anything like that. My kids have also gotten magazine subscriptions from gramma, or a year membership to the zoo. Again, I'd mention that they have loved the toys in past years but there is only limited room for new items in the house.
The only part that rubbed me wrong - and that I'd have a hard time with - is wanting every gift addressed to both kids. They are different ages, different genders, just different kids. I assume they have different interests and ability levels. I see why you want it; I just think that saying that everything belongs to everyone sends a message that I wouldn't be comfortable with. I think it causes more problems than it solves. Other than that, the letter is great.