Welcome to SR!
I'm so sorry for what you, your sister and family are going through.
I'm not really sure what your brother-in-law (BIL) can do legally, but if their daughter's safety is at risk, I would certainly recommend he see a lawyer, just to see what he can do.
You seem to have a pretty good grasp of addiction. I would recommend attending al-anon or nar-anon meetings. They are for people who love and addict, and can help you to know what helps, and what is enabling, which makes the addict worse. I would also REALLY recommend the meetings for your BIL, as he is right in the middle of all of it. Depending on the children's age(s) there is also ala-teen. Most kids will think their parent's addiction is somehow their fault.
You may want to also check out the friends & family forums here, as there are a lot of people here who are going through something similar. No matter where you post, though, you've found a site full of some wonderful, supportive people.
I know I didn't answer all your questions, but I'm sure others will be along.
Hugs and prayers!
Amy