In the interest as of full disclosure my marriage broke down due to his infidelity with a mutual friend 16 years ago. I also don't agree with the "he was the one made vows" bollocks. If someone knows the person they're interested in is married/in a committed relationship they too have a moral duty to stay the fuck away!
But what's done is done. Yes it's painful, but for the love of fuck!
If I could cope with her ("my" ow) looking after dd and having a relationship with her, marrying exh and having DC with him, even on occasions caring for those DC myself to allow them to spend time with dd and socialise with her at events for exh wider family your sil can certainly let this go!
She is being bloody ridiculous!
It's not funny, or clever or morally acceptable even. When she is making comments to people other than you or dh how bloody awkward must they feel?! That's her being rude and inconsiderate to them!
Your dh (as its his bloody sister) needs to tell her to pack it the fuck in or else! The or else being he calls her out publicly on her stupid, petty, vindictive behaviour.
She can't criticise you and not dh as you were both complicit in the event she is criticising.
HOW are mil and dh telling her to shut up? It doesn't sound as if they're doing it strongly enough to make her zip it!
Quite honestly I think your dh needs to arrange to meet her alone, somewhere neutral, and say something like "shut the fuck up about this! It's been 17 years, I was just as guilty of poor behaviour in the matter, your comments are NOT funny in ANY way! They are disrespectful, hurtful and fucking offensive to the woman I LOVE and RESPECT and to ME AND our DC. If you are incapable as mature adult of treating her with civility and respect then I am not interested in spending ANY time with you"
And mean it. It's all well and good not wanting to rock the boat initially but there comes a point enough is enough and your dh and the rest of his family should be getting her to wind her bloody neck in!
I wouldn't want my kids around her in your position in case she makes inappropriate comments on the matter in front of them, which particularly as they get older they may start to feel is a criticism of their very existence by their aunt!