DH and I got married three years ago. We are considerably younger than BIL and SIL, who have been married 17 years and have two DC. MIL is the matriarch. FIL is dead.
When DH and I first started dating he was very preoccupied and upset by the fact that BIL was having an affair and trying to leave SIL for an OW who he worked with. MIL and DH think family should always come first and, rightly or wrongly, read the riot act to BIL and told him that he needed to confess everything to SIL, get his head straight and get rid of the OW.
BIL capitulated to their view, got rid of the OW and confessed all to SIL who, to everyone's shock, instantly "forgave him," (after going to his work and telling BIL's boss and getting him and the OW sacked.) This was all while DH and I were first dating, and after her revenge, SIL was very keen to quickly sweep it all under the carpet. She made DH promise not to tell me anything that had happened because she "didn't want hedgebets to see the family in a bad light going forward." 
DH told her that he hadn't told me, even though he had, and asked me to swear I'd never mention it to her, so I swore not to. He was very upset during the whole ordeal and often needed to offload on me about it, so I don't blame him for breaking his family's privacy - and now we are married, it is fine that I know about it anyway. MIL also doesn't know that I know.
Fast forward to now and SIL is becoming extremely controlling of everyone in the family. According to DH she was very controlling before, and BIL listed this as one of the reasons why he just could not be with her anymore. I'll try and give a few examples of what she does:
- she needs to know where we all are at any given time. If I give her the information, she becomes very judgemental (DH and I went on holiday last month and only told MIL. When SIL found out, she texted immediately and demanded to know where we were and how long we were there. When I told her, she implied that DH and I were extravagant, lazy and afraid of work, eg: "where does the money come from for you two to go gallivanting off all the time? I suppose you are both just beach bums and so you don't really care about saving for your futures. Fair enough, you both have that kind of personality. I could never do that. BIL and I are only happy if we have money in the bank. Let's hope my DC take after BIL and I and not you two :-)") If I don't tell her where I am, I get several sarcastic texts "oh don't worry about me, I don't matter, I'm only your sister...too busy to talk to me, eh? Too much fun to reply?" and she will go direct to BIL, MIL or DH and bitch about me for being secretive and holding things back. In the holiday example, she went to MIL and told her that DH and I would probably go bankrupt from so much extravagant spending, which really worried MIL (who is now in her 70s) In the same vein, she will come to me and bitch about DH, BIL or MIL when they don't give her what she wants - so it is not just directed at me.
- I am currently her 'favourite' because I reply to her texts and do what she wants, so she bitches to me mostly about the rest of the family. We are due to go on a big family holiday in September, and she has given me a shopping list of things she wants me to get for her that she cannot get in the city she lives in. This would be fine if I didn't feel like such a minion already. She has made several schedules for the holiday in advance and tried to tie us all in to those plans by sending out a family email with the schedule (swimming at 9am, run at 10am, lunch at 12 noon etc) and asking us to commit to it months in advance. She uses her DCs as an excuse for this regimented attitude and says that they need regularity and we all need to contribute to that by agreeing to and obeying the schedule. MIL often refuses to do this and she and SIL have huge rows as a result. SIL threatens her that she is isolating herself from her DGC by rejecting the schedule and if MIL doesn't get up at 7am to have breakfast with the DC, she will not see them all at all. So MIL eventually tows the line.
- She puts down my relationship with DH and constantly compares it unfavourably to her relationship with BIL. She implies that they have more trust, more love, more attraction. Sometimes she sends me lessons over text or email about what I have to do "to keep my husband." Like she is some kind of wizened relationship guru. She tells me stories about DH as she knew him before he met me: "He never went out with women who were like you - oh no. Such a different type. Taller, thinner, more "career oriented."" While she patronises me about this I am burning inside, because she doesn't know I know that things are not and haven't been rosy for her and BIL, but for DH's sake I keep my mouth shut. She often comments in public on how insecurely I behave and how I shouldn't be so insecure. DH always defends me and shoots me apologetic looks, but it is obvious he is also afraid of her as he lives in fear of me finally exploding and telling her I know everything. She comments on my body - if I've put on weight or not. She's also a bit inappropriate. She noted that my boobs were bigger than hers and wondered aloud whether maybe DH and BIL liked big boobs, because MIL's boobs are big too. She then, in front of all of us and her DCs debated whether she should get a boob job or not to "please her husband." Then decides against it and says "BIL should love me as I am," then shoots him a poisonous look. This is most damaging, of course, to her DCs, who are constantly aware of the atmosphere between them.
- I am now pregnant with my first DC and she is trying to tighten her grip on me. She asks me over text how I'm feeling, what I'm doing. And you've guessed it -- everything I am feeling and doing is completely WRONG. She has been especially controlling with me about this holiday schedule. She seems to want me, more than anyone, to be in the right place at the right time as she dictates. It doesn't take a genius psychologist to figure out that one of her prime modes of control is via the DCs. She has defined herself within our family group as a mother and uses the DCs like chess pieces to get everyone to do what she wants. Now that I am pregnant, I am threatening her role. So she is determined to have me under the thumb.
DH and I have got to the point where we wish they had just divorced. BIL is a shadow of the man he was. I am really torn with my opinion of her, because I entered my friendship with her completely on her side. I can see and understand the insecure part of her which needs to lash out at us. But it is like she is punishing us all for BIL's betrayal.
What, if anything, would you do about this?