About your daughter - have you asked HER whether she wants you to tell her dad? I think it should be her call.
I know when my ex first had an affair, I didn't share this information with my family. We reconciled and I knew they would never have accepted him if they had known he cheated on me. Only your D knows whether she wants her dad to know right now, and whether she wants you to tell him or wants to tell him herself.
As for the SIL - your daughter needs to consult with an attorney and figure out how to protect herself financially if needed. Since she is the primary breadwinner, it's conceivable that her H could get alimony. Also conceivable that he could claim to be the primary caregiver, get primary custody of the kids and make her pay child support as well! So she needs to be very strategic about any choices she makes. Whatever would encourage him to get a paying job ( so that she won't have to pay alimony), what precedents are set about residency and child visitation etc. This could be very complicated and some good advice from an attorney now could prevent her from making decisions that will hurt her financially in the future.
