Obviously your SIL is BU because she made a very crass remark that implies your DD isn't very bright.
However, you are being a little bit BU because you seem to fail to understand her point. You say the exam isn't based on the school curriculum but that is exactly the point of the 11+. The idea is to test "raw ability", not what someone has learnt at school, so that if you take 100 children who have never seen an 11+ paper before, you could set them the test and from that work out who are the 20 most naturally able.
Now people can and do argue about whether you can actually measure raw ability, and indeed whether it even exists - after all no child is brought up in a culture-free zone, so there are plenty of influences (school and parents in particular) that will help them pass or fail the test, regardless of supposed natural ability. And of course children develop at different rates.
But if you accept the premise that the 11+ is supposed to test raw ability, then parents who coach their children are skewing the results. So in that group of 100, if 30 have been coached and 70 haven't, you can easily end up with a situation where a middling-ability child who has been coached does better than a naturally bright child who hasn't.
Is it cheating? Well, once you're in a situation where other people are coaching their kids, not really. Most parents want to do the best for their kids. Is it fair? Obviously not.
So the question for you is whether you think your child will struggle at a grammar - do you think she's bright, but needs a little help from coaching? Or is she an average child who might struggle if surrounded by clever kids?