To give just the slightest of benefit of a doubt, maybe, just maybe, your husbands intentions are pure but just plain stupid. If you choose to work things out with your husband and your sister, and feel comfortable having your sister as a surrogate based on what you believe are her healthy lifestyle choices, I would seriously consider using donor eggs and doing IVF. However, I personally would feel very uncomfortable about using your sister as a surrogate.

This isn't my experience, but that if a dear friend. She was a surrogate for the close friend of a family member and was compensated in a similar way that you would compensate your sister if she was your surrogate (the couple could afford a surrogate and pay one generously, but preferred to have someone they knew and my friend wasn't interested in a large monetary payment). The pregnancy itself was very easy and she enjoyed the experience, but as can be expected, she grew very attached to the unborn child and dreaded the day it would have to go to its parents. Contractually, she had to, but emotionally it was very difficult. She suffered extreme post partum depression (she never had any anxiety/depression issues before), that even with therapy and medication, she still struggled immensely. The couple who she carried the baby for were very active in the small area that she lived and were very close to her family and friends (I was only generally acquainted with them). The pain of seeing them with the baby she birthed only left her with what she thought was her only solution, to cut out her entire family and move from the only home she knew.

Surrogacy can be a great thing for some people, but I believe it's best done with some degrees of separation. Your sister doesn't fall under this category.

My prayers are with you.