Am I overreacting?
Yes, unless you have some past history or evidence that the boss' attendance would cause negative issues that you are worrying about.
Is this a perfectly reasonable request
Yes. It is entirely reasonable that someone higher up the management chain can observe work in progress. If this work is summarising or planning tasks that happen at other times, it may be a positive change that reduces amount of reports and explaining that you or the team are required to do.
and if so; should I establish some ground rules etc.?
You may want to clarify any role that the boss wants to take in the meeting. For instance, it could be really useful if they can be asked questions about priorities and tasks you are planning, so that you can make decisions in the meeting as opposed to take them away for a separate conversation with the boss.
Invite them to the meeting. See what happens. If there is behaviour from the boss or impact to team members' behaviour that you do not like, then address that if it actually happens.
If your concerns about being undermined or micromanagement seem valid to you after a couple of meetings, then bring them up in separate discussions with your boss as appropriate (I would not use those terms as they are somewhat charged).