Your sister-in-law deserves to know. If he would risk something like at his mom's house, what do you think he does when no one is around?
That's definitely not the first time he's done it and no one deserves to be played like that.
Sure they have kids but it should be up to HER if she wants to stay with a cheater, not you or your brother. It's much healthier to have separated parents that can co-parent over a broken marriage. He was selfish and didn't think of the consequences.
I'm not saying you should directly tell her, but you definitely need to at least confront your brother about it. He can't just continue to be selfish while his wife is being faithful to her family. It's not right.