"She says that it is because Japanese don't say that"
That's true to a certain extent. While many people of the younger generation says "aishiteru ('I love you' in the most devoting way)", many married couples go on living happily ever after without saying it at all. They try to feel it, rather than to say it.
"and on other occations she says it is because there are no words in Japanese to say that."
Yes and no. When the Japanese want to express "I love you" in words, they often say things like "suki (I like you)", "dai-suki (I like you a lot", "taisetsu (you're precious)". The expression "aishiteru" can sound quite daring. It is often used in lyrics, but if people say it in public, it's quite astonishing (although not actually annoying). So I guess you can ask her to say "I love you" if it pleases you, but maybe it's hard for her to say it from the bottom of her heart even though she loves you without words.
"Also, I was wondering if it is common for Japanese women to avoid meeting their husband's family and want him to sever ties with them."
This is true to a certain extent too, but I wonder if this is cultural. "In-law" conflicts are heard of in any country. It doesn't surprise me to hear about any person in the world not wanting to be involved with in-laws, and I think we see those situations in western movies all the time. But there are people who gladly have severe ties with in-laws (my J aunt and her J daugher-in-law goes to theaters and dining all the time, just the two of them, and most Japanese find this as a pleasant surprise), so it depends both on the daught-in-law and parents-in-law, I guess. Personally, I think in-law relationships goes well best when we can meet each other about 2-3 times a year and have a great couple of days together.
"Trying to figure out if this is simply a cultural difference that I am unaware of or maybe something else."
Well, even though you can expect better situations with Japanese wives, I think your wife is fairly normal. I wouldn't take it personal. Don't you have a mutual Japanese friend you can talk to? Mutual friends really help in marriage relationships. There are lots of things you'd never find out about your spouse if it weren't for your friends.
Btw, Japanese married couples tend to hug and kiss less, and not all but some are not comfortable with recieving flowers all the time. A friend says she'd rather have the money saved than getting flowers from her European husband. But I like flowers, maybe because my Japanese husband hardly gives them to me.^_^