I agree with your feeling that your sil is not well. This definitely sounds like a case of lashing out and making your dh the scapegoat/ enemy, who is to blame for everything that's wrong in her life. I suspect that deep down your sil realises that she is the orchestrator of her own misery! Rather than admit that she is responsible for her own issues, it is much easier to choose a target and blame everything on them (in this case your dh and yourself).
I would back away, your sil has chosen to behave this way! She has lashed out and been cruel deliberately. If I was your dh, I would perhaps write a letter/ send a Christmas card saying something along the lines of
'I am very sorry that you feel that I have been lacking in my role as your brother. I was very surprised by the depth of your anger and venom. I only wish you had addressed this with me earlier, instead of allowing your hurt and anger grow to the point of lashing out at myself and my wife.
I(we) don't agree with your interpretation of events, and we have never wished you any harm. As adults we all have the right to live our lives the way we choose, I am proud of my achievements and the life I have built with my wife and our children. I will not stand by and allow you to run my wife and the life we have built down. You have absolutely no right to do that!
I hope that you can find support to help you deal with what sounds like a lot of negative emotions. Until that point, I don't think it is wise for us to have contact. As your brother, I will, of course, be here if you need me. If your feelings change and you wish to apologise and repair our relationship, then we will be here when you are ready. Until then, I wish you and your family well and I hope that you will have a lovely Christmas. Much love dh and greenhairybottle