Well, I am not a parent, so as per DIS rules, I probably am wrong or do not have a right to an opinion, lol!
For the record, I tend to be a rule follower. Does 5 seem a bit old to not wear pants? Perhaps. But the way the OP started the story, I was thinking the kid had NOTHING on, not even underwear. I mean if he was sitting at the table in a shirt with only his underwear, I would find it a bit odd. However, not sure I would have taken it upon myself to tell the kid what to do. I probably would have asked one of the parents about it, more from being a bit curious about it perspective.
OP, it is clear from the follow up posts that you have something going on with your sister in law and this pants issue is definitely related to that.