Always be kind. Unless you can be Batman, then be Batman. <----- Love this!
I like many of the suggestions, especially the one about sending the top to the niece who can then have it quilted and have something special to gift to her mother. A bonus to that is: the sil can't complain about the choice of quilting because her daughter chose it. And it makes the niece a part of the gift then. Gives her some ownership in this mess.
Maybe write a letter to the quilt, thanking it for the kindness it will be showing to your sil. You want to send the quilt off with good vibes. You want it to be happy. Bless it and send it on it's way. Throw away the letter. :-)