Peardrop so sorry for your situation, Firstly your D is hurting badly, she wants to punish your SIL and thinks you should too. It is understandable and it will pass. Some counseling might help. Secondly regardless of how she feels, your SIL is her children's father and she will need to work with this. Even if she manages to convince them he is a horrible person and destroys all contact, as the children grow older they may simply ignore her.
Mediation may help them to work through the anger and hurt, but she will need to agree to have contact with him.
It is the hardest time to get through and you may find that things slowly improve as she adjusts to her new situation.