I think maybe your SIL has lost a bit of perspective from being a protective mommy; some of us human beings have a "brain short-out" when a kid, esp. ours, cries.
Your role in this situation is to model the appropriate reaction consistently so that she can learn how to properly react.
And the appropriate reaction is an affectionate, bemused, sympathy toward the kid. "Yeah, soap does taste bad, doesn't it! Isn't it funny that you tried to eat it? I'm sorry it was stinky-tasting. Let me give you a little hug, smile at you in amusement for a moment, tell you about the time that *I* ate something stupid when I was a little kid, and send you off to do something else. Oh, and totally am I going to tell this story on you when you are older, bcs I think it's a classic 'funny little kid' story. But I'll probably also tell *my* 'eating soap' story at the same time."