As much as you'd like to make this better for your MIL and SIL, there is no way that you can do so. They are responsible for their own feelings and their relationship. Let go of your guilty feelings.
When you try to get involved you're creating a triangle which is not healthy for any of you. You have a relationship with each one of them and not with both of them at the same time. Each relationship needs to be separate. There is a theory explaining all of this but I can't think of what it's called.
Your SIL is your MIL's daughter? If so, I somewhat understand the difference in your MIL's feelings. Your SIL "has" to love her mother; so it"s safer to be more judgmental with her. She's also raised her and is disappointed in the way her daughter is choosing to live. As a disinterested outside person, I am thinking that it might've been best for your SIL to not have had the kids when she did. I believe it's best to not have children when a relationship is unstable. I would also worry about the health of the fourth child considering the risks involved with the third. It sounds like, in your MIL's eyes, her daughter has made some poor choices and because she is her daughter she feels the need to let her daughter know this. It's difficult to let go of the need to influence our children.
All of this has nothing to do with you. it is their relationship to work out. You can't fix it. You can be empathic with your SIL. However, your relationship with your MIL should only be based on what is best for that relationship. Your relationship with each woman is separate from the other relationship.