Thanks once again for the replies.
I do at times wish my son would 'man up' and put DIL's sister in her place, but I think even he is aware of the power her sister has over her. He has his own issues with the sister and doesn't like her, she has a habit of badmouthing him to my DIL and inferring he's 'too close to his daughter', 'doesn't help enough in the house', 'isn't emotional enough', the list goes on. Sad thing is when my DIL hears all these things from her sister she actually believes them all and they end up arguing about it, then it all calms down, until the next time.
There are times I feel really sad for DIL as I do realise she is stuck in the middle. She also has an aunt on her father's side who is almost as bad as he is, which doesn't help.
I almost feel like DIL is like the child looking in from the outside and always feeling excluded. When her father comes over for a holiday he stays with the younger sister, spends lots of money on her, but unless DIL puts herself out to go to her sister's house to spend time with him, I really don't think he would bother to see her or GD as he is really only interested in himself and his younger daughter 