I suppose it really depends on how you get on in the first place. Personally I would prefer not, but that is because I enjoy 'going' to see family rather than them 'being there'. For me it is often a day out, and sometimes a weekend away, so with them next door I would probably see them even less!
I think it would annoy me if my wife's sister lived next door though as there would never be any privacy. I'm sure my wife would feel the same about my sisters!
Distance makes the heart grow fonder.