If I were in that position I would consider it my nephew too, not just my hubbys. I think regardless of your SILs unusual ways and your differences, if you have the opportunity to make a positive impact in your nephews life then I think you should take that opportunity. I can see how if just your hubby was involved it could cause dramas but if you are all involved you are more able to protect your family unit at the same time. I feel sad for the little boy.

Like you've already said, your family needs to come first, but it would be good if it possible to do both.