Had a discussion with the wife...

Hey Ink, don't forget that this is your wife's sister. When the latest drama blows over, or blows up, she will still be her blood. No matter how stupid or irrisponsible, try, really try not to beat on her too hard. It's her life to jack up, and one day she and your wife may get through this and end up really close. Just try not to say anything that cannot be forgotten and forgiven (by your wife).
Good luck with it, and try to avoid the fallout as best you can!