Sorry to hear about what happened to your son.
Interesting turn that your wife's on the unexpected side of the fence on this. Personally I don't know what I'd do. There's just something awful sad about
if it can be avoided. And as mentioned, it's not like it was an unknown risk. I think your biggest concern should be that your son doesn't develop a complex around dogs. Maybe have him play with a friendly dog, and then talk to him about not putting his face near a dog.
Plus, look on the bright side, if your wife's this upset with her folks, maybe you won't have to deal with the in-laws for a while