As you probably know blessed, you've described a classic abuse cycle...frustration build up, explosive, abusive behavior, then calm, occasionally contrite behavior. I am sure everyone looks like a happy, normal family right now, because that is how they've been trained to act during this phase of the cycle. As you watch, the cycle continues and the children will be abused again. The other classic piece is when the abuser identifies a "target" of anger, ie the two year old. It's textbook med school, psychiatry, social work, etc.
The admirable work of modeling different, gentle behavior is best done when the abused members of the family are safe. It's entirely possible that the children or wife will "pay" later for BIL feeling embarrased, put on the spot, what have you. It's why couple's counseling is ill advised in frankly abusive relationships. The person being abused is not safe and the threat becomes greater. My hope would be that someone in your group has the wherewithall to call the police if one of the kids is getting hurt and get BIL taken out of the scene. Enough already with hearing about him and how devoted a family man he is--he HURTS children. Try to bring the focus back to the ones who need it-the kids. The healing of the family unit can only be done when all members are safe, and obviously the children are in immediate danger.
As for real life suggestions-you assume too much knowledge when you say CPS wouldn't take the case. If they have been investigated before a second report will be that much more serious. But you're not doing that, so to move on. You could talk w/your SIL and offer support around domestic violence counseling. #'s are in the phone book, shelter's are available, information about restraining orders could be given. You might not think it would come to that, but you never know. Acknowledging abuse and getting out can be a long painful process, but sometimes what a woman can't do for herself, she can do for her child. You might encourage the mom to talk to the kids pedi for help and support, or a nurse practitioner. Major hospitals often have domestic violence trained personel. Offer to go with her, offer to help get resources, offer the gas $$$ if she needs it, just offer whatever she needs. She might not take you up on it now, but in 6 mos. she may. Be very careful with your discussions however-abusers are controlling and vigilent.
And, I say this with kindness blessed....I think you need some support as well. It must be awful to witness this. Trauma can be split a lot of ways and it is traumatic to see children be hurt. Our mind's natural reaction can be to shut down and not accept or downplay what we've seen. It can lead to fear, indecisiveness, you name it. Your inaction may be having the unintended consequence of keeping the cycle of violence subdued for the moment, but your gentleness won't stop it. Do you have someone to work this through with, IRL? Can you hand the knowledge to someone who is a bit more removed and can capably assess the danger to the kids--I am thinking colleague, mentor, friend? Just a thought.