Ha ha! "let a kid keep sleeping in a diaper and they'll never learn..." I wonder how many adults are still peeing in the bed because their parents kept putting diapers on them when they were 4 years old?
Tell your SIL not to talk to that person about her son anymore!
The first thing your SIL should do is talk to her ped about it. Then with her ped's advise and direction, she can start helping her son.
The first thing she needs to have are 2 waterproof pads for the bed and 2 sets of sheets. She should also have a calendar and some stickers. She should show her son the days of the week on the calendar. Use the calendar to give stickers for nights that he gets up with her and pees in the potty and then goes right back to sleep. Start there. If he cannot get up in the night to pee because he is sleeping SO hard, that is part of the answer right there. He may be unable to wake enough and cannot feel his bladder.
If he can, I would take him to the toilet right before she goes to sleep herself. NO allowing her 4 year old to come into her bed - he must go back to his.
She should not get bigger diapers to accommodate his growing size. If the diapers are uncomfortable, that is an added incentive for him to want to have dry nights.
Once he is pottying in the middle of the night, then it's time for a "dry run" of the big boy underwear. Tell him that he can wear his big boy pants to bed, but if he wets the bed, he will have to wait 4 nights to get to wear his big boy pants again. When he wets his pants, she should with love and kindness, say to him "I know you want to have dry nights. I know you are disappointed. Keep trying and you'll get there!" Meanwhile, the first night he is dry, put a sticker on the calendar and say to him "Only 3 more nights in a row and you can wear your big boy pants to bed!"
This approach gives him a goal. It saves him from wetting all over the bed every night and causing both of you a lot of grief. The stickers are exciting to him because of what they represent.
If this is indeed a physical issue, the doctor will be able to help. There are conditions where the body produces too much urine, and there is medicine to help. It could be that he simply sleeps too deeply to prevent letting go of his urine. Later when he is older, the doctor can help you with an alarm that wakes him at the first sign of wetness so that he can get up and go to the bathroom.
There are many kids who have ISSUES with night time bedwetting. The WORST thing we can do is punish over it.
It is far too early to determine that your nephew is one of the kids who will be having night time accidents into his teens. Tell her that night time pottying and daytime potting are totally different, and go talk to the ped about this.
Good luck to her!
Dawn