I would naturally buy the kids presents ( I don't believe in all this 'step' and 'half' and 'that child's not really yours so it doesn't count' etc) as I'd consider them my nephews and nieces, just as when I got together with my wife I considered her son to be my son from that point and she considered my boys to be her boys. The fact that we went on to have two daughters of our own mattered nothing- all the kids were ' our' kids, no steps, halfs etc- and that sounds like what your brother is trying to do as well.
It sounds as though you really just don't want to do it in which case don't buy them anything but I too, like everyone else can't for the life of me understand why- they're little kids, it's Christmas- give 'em a present.