Well debatable, no one is being physically hurt.
But a I would think the sister was pretty upset with her sister trying to undermine her and cause a fight between her and her husband, the husband was probably pretty pissed off and the kid was likely pretty confused.
All avoided if the OP had minded her own business.
According to the OP, her sister was a little bit miffed when it happened, but seemed to be over it by the next day... So it doesn't sound like she was all that upset about it, or for very long. Frankly, it seems people on this thread seem far more upset than the OP's sister.
Second, no body here knows exactly why she was upset. For all we know, she may have just been having a rough day. She may have been em arrassed that her son wasn't listening and rather than admitting that, tried to excuse his behavior so everyone wouldn't think it was the kid just not listening. It seems possible that she may have wanted to try to cover for the kid considering it appears he is having issues at daycare, etc and not too many family members are willing to babysit him. Maybe she was upset about the OP saying something, but the point is, we don't know exactly what she was thinking.
To assert that the OP was intentionally trying to undermine her and cause a fight between her and her husband sounds rather far fetched. OP has indicated that the father had previously (as in, at other dinners), told the boy to put on pants. By OP asking the boy to at this dinner, it would seem she could have been following his lead from previous dinners and trying to help out. I really don't think OP was trying to be malicious in asking a 5 yr old to put on pants before an outside dinner.
Nothing has been said to indicate that the father of the boy was in any way pissed off by the OP telling his son to put on pants.
Only after he was backed into a corner by his sister in law, the dad had not told the kid at any point prior that evening, and I think if he really cared he would have dealt with it before other people felt the need to do so.
IP has said that the dad has, at prior dinners, told the kid to wear pants. I don't see how he was in any way backed into a corner. It sounds like he overheard his kid telling OP no and came over to back her up because he felt his kid should be wearing pants as well. Maybe he had already told the kid to put on pants that day, maybe he just got home and hadn't noticed, maybe he was distracted prior- who knows. It seems like he was definitely on board with his kid wearing pants though.
Again, that seems rather accusatory. Telling her sister that her (sister's) husband asked the boy to put on pants is helpful so that she knows the kid was already told to do it by his other parent. Making a parent aware of these things helps to prevent parents from getting played off one another. You seem to think OP was standing there giggling with glee that her sister and BIL disagreed about something.
But, I am trying to picture one of my sisters husbands giving my child orders, while I and my husband are right there. And, I certainly can't even begin to imagine my husband doing such a thing.
That's really something that just depends on the situation. First, it sounds like when OP's DH told the kid to put on pants that neither of the parents were right there. She said they were taking food out for dinner so I'm guessing people were kind of in and out. It sounds like the dad overheard OP telling the kid that his uncle told him to put on pants and stepped in to back her up.
Also, my DH has told my nephews to do things plenty of times, sometimes when their father was there. Likewise, my nephews' mom and her boyfriend (whom I've only met a handful of times) have both told my kids to do things when I've been right there. Sometimes parents just don't happen to notice what's going on and at least in my family, some requests are simple enough that there's no need to have the parent be the middleman when asking a kid to do something. Putting on clothes is one of those things that we wouldn't pull the parent aside out of hearing of the kid to ask them to tell their kid to do. We'd just directly ask the kid to do it, same as asking them to help out with something or take off muddy shoes before going in the house (even if it wasn't our house), or to wash their hands before dinner. All of those are innocent enough requests and shouldn't need to go through a parent. OP (and her DH) weren't asking the kid to get in a car with a stranger or do something harmful. They asked the kid to put on pants.