Yikes - a five year old for a sister-in-law.

Sounds like you and your husband need to set ground rules for the little girl. Its not her fault her parents spoil her rotten, but that is no excuse for bad behavior in your home. Kids are often smarter than we give them credit for. If she learns that she is not allowed to mistreat the kitties then she will stop - at least in your presence.

She's probably also used to being the center of attention and doesn't quite understand why big brother is such a big deal right now.

Sometimes diplomacy can help (which I realize can be hard when you know that you are 100% in the right) - but here's an approach -

Talk to the in-laws. Explain how your cats are kind of high-strung and you worry that they might claw or bite the little girl if she doesn't leave them alone. Then try bribery with the little girl, buy her a toy or stuffed animal that she can play with instead of the cats.