Even before you gave us the additional info, I felt you should keep the cat. An owner who can discard an animal on a whim and then want it back on another whim has issues.
While I'm sure the 4 yo was upset, chances are she's moved on to other things as 4 year olds will do.
Good for you holding your ground. The SIL sounds like a piece of work not to mention an animal abuser.