No longer a practicing Jew (my dad converted in the '60's, made for an interesting childhood, you should hear my Hebrew school stories at the Hasidic Yeshiva school
) but we have Shabbat at our house at least once a month with good friends. I have given a sip of wine to all of my kids during the blessings and now the older ones (13 and 16 get their own glass) When those same friends were remodling we had the Seder at my house and all of the kids (including my two year old) had those teeny-tiny glasses for the ceremony. I don't believe a sip or two of wine is harmful especially at the table with family as part of a very meaningful ceremony.
My kids have been taking communion since they were about 3 and none of them is sneaking sacrimental wine. I think your SIL is a bit over the top but this is coming from a mom who allows her kids to have wine with dinner.
lisa