Your sister did the wrong thing — at the wrong time — in the wrong way. Her lack of sensitivity to your daughter, the direct physical invasion, and the timing of the circumstances has caused your daughter to be upset and embarrassed, you and your husband to feel alienated, and her own husband to be ashamed. Regardless of her intention, the net result is that she upset everyone. Her self-righteous reaction doesn’t leave much room for healing. When someone fails to acknowledge their actions hurt other people, there isn’t much opportunity to rebuild.
Give it some time. I would talk privately with her after a while and explain that you want to have a relationship with her, and would like her to understand how this hurt you. I would offer her a dialogue from time-to-time to give her an opportunity. There were SO many other ways she could have handled this — but chose not to. If she isn’t willing to see her actions as being hurtful, then you may have to remain guarded about your involvement. If she only invests in justifying herself then she will rationalize doing it, or something equally inappropriate, again.