I echo what Lulu says, when children are being mean (mine or others) they are removed from the situation and have to play on their own until they can learn to play nice. It rarely takes kids long to learn this lesson, usually one picnic spent sitting by the car or one playdate spent alone in their room when everyone else is on the trampoline.
The problem is, of course, your sister 1 who may not take kindly to her kids being excluded if she thinks they are doing no wrong. However there is not much to be done other than be honest with her and hopr that she sees you are doing this out of love and nothing less.
It seems that she will react negatively - you can't really change that. What you can do is put your boundaries in place and stay firm about them "I'm sorry but it's not ok to be throwing stones at my kid - why don't we get the football out instead?".
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