OK, so ignoring the weird side bar with Denise, here is what i have got so far:
-My kids wore pants/skirts most of the time, even as toddlers---unless they were playing in water or eating blackberries outside before being hosed down because those are such a mess with toddlers, etc. I might think it is odd to see someone else's preschooler running around pantsless at someone'S house, but not a big deal.
-OP---you clearly dislike how your sister is raising her son. You may be right, you may not be---I don't know. I DO know that setting up power struggles between the adults in his life that he is present for and in the middle of is not at all helpful to him, nor will it endear your sister to you or your parenting techniques to put her on the spot and force her to defend her parenting or give in.
-It is abundantly clear in your comments that you knew the wearing or not wearing of pants to dinner is a topic your sister and her husband disagree on and that you knew the little boy is often allowed not to wear them---thus this was not a helpful bit of auntie and uncle parenting that accidentally went awry---this was a power play to show who was in charge and show your sister how you think she should parent. I find that pretty awful. Your sister sounds far more forgiving than I would be.
- Sure, some families all the extended family parent each other's kids and it works great---then again, if this family were that close, the aunt and uncle being over would not be "company" and certainly even in those cases if you KNOW something is a bone of contention between the parents and no one is in danger and your own belongings, etc are now being messed with---why on earth would such a friendly family group intentionally create division?
- It is downright silly to say the boy was not at HIS house when he lives in a house the yard belongs with
- And even if you are going to play the above silly game of saying that makes it all OK, the OP was not the owner of that strip of grass either. If Grandma, as hostess, was so very bothered by the pants issue, she could have said something to her daughter or grandson about it.
-I very much doubt that there are many places in the US where it is illegal to be out in public wearing non see through underwear which is covering all the bits normally required to be covered. It might raise eyebrows. It might even lead to police asking questions or monitoring---but I cannot imagine that it is illegal in more than a handful of places.