Oh, Splash - I am so so sorry. I am sitting here with tears in my eyes. Your poor, poor nephew.
I wonder, though, if it wouldn't be a good idea to get in touch with one of the lawyers who specialise in this kind of case and find out what your nephew will need to know, so he will be able to sue his circumciser in the future.
Once you have this information, would it be possible to sit down with your SIL and give her the information about possible consequences of too-tight circs, along with the information she needs to sue the doctor who did this?
There is a good possibility she won't be open to this information at all (so you could then keep it for your nephew, once he's old enough to understand). But it is the doctor here who is beyond negligent and who needs to be stopped.
Parents who do this, by and large, do not realise what they are doing. Yes, they have cut their child to suit their own aesthetic tastes (which is sick in and of itself), but they don't want to (or realise that they quite possibly are going to) ruin their child's future sex life.
I know it's asking a lot of you. And I think I would have a hard time sitting down calmly with parents who could do that to their child. But if you could make your sil understand what has just been done to her son and actually get her to take action against the doctor who did this, not only would you help your nephew, but you might actually make the doctor stop and fully inform parents about the possible consequences of a re-circ, instead of just going ahead and butchering the next child whose parents don't like the way his circ looks.