Perhaps I missed some posts or read them differently, but I didn't see anyone say the OP was wrong or unfeeling. Several posters who sympathize with the SIL also expressed sympathy for the OP. It is a difficult situation all around.
I do think the posters who suggest the SIL is "crying wolf" or over-dramatizing the situation are underplaying the reality. The SIL may be a drama queen, sure, but a hospitalized two month old with a bone infection in the context of a recent loss of an infant child is pretty dramatic in cold hard fact. Just because you're paranoid doesn't mean they're not out to get you.
The OP and her family of course need to have their own world remain as normal as possible, and I'm glad they were able to travel to the OP's extended family this year (though it seems that was also not drama free, regrettably). But it seems that for the section of the family that involves SIL, the reality is that this year, yet again, will not be normal, and it may be easier on the OP to just flow with that. It seems she has decided to, and I wish her the best.