Not sure if anyone's said this or not but what about the child?
How would he/she feel if you did end up looking after her/him but he/she knew that living right nearby was a mum who didn't want her? That would hurt surely? Normally when children are adopted the parent has truly given them up either due to pressure from societal norms/parents or due to feeling or being completely unable to look after their child and give them the life they think they should have.
This woman will be living 30 minutes away, what will you do, pretend she's just yours, SIL will be 'aunty'? The child will be able to ask who their birth parent is and then how will that child cope when they hear that the mum lives within driving distance, isn't her aunt and gave her up for absolutely no good reason at all - that could really mess with that child in a severe way. I would have a totally different point of view if the SIL was on drugs or suffering severely from a MH/health issue that was driving this decision, but so far I've heard nothing other than someone who can't quite face the responsibility of being an adult female who has gotten pregnant - and that's not a good enough reason to give a child up for adoption really is it.
However, that's not the case here. SIL may be wavering and flip flopping back and forth - she can terminate or she can keep the baby. What are the impediments to her keeping the baby? That she's 'just not sure'? That's a pretty shite 'reason' for giving away a child. I'm wondering what kind of person SIL is - and massive apologies if this is totally wrong and way off base, but is she a bit precious or a bit self obsessed anyway or what?
I can TOTALLY see the temptation but I think your DH is right when he points out the complexity that you need to consider.
I think it would be better all round to support her to make the decision for termination and if she chooses not to, she's a grown adult, and she has to raise the child. You can't just give children away for no bloody reason other than you don't quite fancy it. She got pregnant, now, like anyone else who gets pregnant, she has to get on with it one way or another.
Anyway, just my thoughts and I hope all concerned are able to reach a workable decision, it's your decisions to make together but also there's the effect on that child which doesn't especially seem to have been a significant element of consideration so far.