You're in a tough spot.
I think that it comes down to:
1. She's demanding the shower
2. She clearly doesn't take care of the things she has
3. She seems less concerned about celebrating the new life thank getting stuff
If you decide to throw the shower, I would be sure that she understands:
1. It isn't to give her stuff, but to celebrate the new little guy
2. You are overwhelmed and your resources (financial & otherwise) are pretty drained
3. People are probably pretty sick of giving her stuff she isn't going to take care of...
If you can, team up with the sister in law to deliver the message.
The second-hand idea is a FANTASTIC one. If she really needs some big basics, that's the way to go. Everyone is always looking to get rid of their stuff their kids have outgrown (I got most of the big-ticket items for our baby this way)...and it's a little more environmentally friendly: reusing, instead of buying all-new. Make it easy on yourself, though: Put together a list of things that she needs and then send that around to the people you're inviting so that they can "sign up" to donate their unwanted items.
Also, she should know that there is a place called Children's Orchard that sells gently used baby stuff. I don't know if someone already mentioned that? Sorry if I'm repeating.
Good luck - let us know what you decide.