ETA: Just a thought...if the family is so close, how could it divide so easily over this issue?
You've known your son in law along time. What kind of character has he demonstrated before? Is he someone that "has no filter" and says exactly what he thinks/feels? Someone who is socially awkward? Or someone who pushes boundaries and everyone was just waiting for this to happen?
The reality is only 2 people really know what happened: your son in law and nephew's wife, and everyone else is just picking a version to believe. There are three sides to every story: his, hers and the actual truth.
By talking about it with other family members, you are fueling the drama of this incident and the 'different versions'of it.
The emotional intensity of this reaction (without knowing details) from everybody indicates there are not a lot of firm boundaries and poor communication between members. So I'm not sure how much influence you have besides on your own family.
I like Doris's idea of hosting holidays at your house and you be in charge of who attends but including everybody. If they don't come, let it go. Respect their choice to do what is best for them at this time.
But as far as what to do....I would stop talking about it period. If someone brings it up, I would say, "that is between SIL and nephew's wife I'm going to let them work this out" and switch to neutral topic. Be firm and keep circulating that response to others. When they find you won't participate in 'any version' they will stop talking to you about it and stop putting you in the middle.
You show up to other family functions, enjoy them, and repeat to others that this is between SIL and nephew's wife..let's let them work it out....I'm here to enjoy (said event) and your company.
Good luck