Sister-in-law abusing her power as executor in a Will

As an executor your sister-in-law has a fiduciary duty to the estate and the beneficiaries. And it appears that she has breached this duty.  Lawfully gifted items are not assets of the estate. 

By way of explanation, a fiduciary duty is the highest standard of care imposed at law.  A fiduciary is expected to put the best interests of the entity/person they owe the duty to above all else. This relationship is highlighted by good faith, loyalty and trust. Accordingly, a fiduciary must not put their personal interests before their duty, and must not profit from their position as a fiduciary.  In your case, the fiduciary or executor is wasting estate assets by pursuing a frivolous lawsuit, as well as holding up the final settlement of the estate.  She is doing so at your expense and her potential personal benefit.  If the items in question are considered estate assets (which they most likely won't be considering the time period in which you have had them), she will benefit by getting a share that she would not otherwise be entitled to.

At this point, you need to contact an attorney about a counter-suit.  You should also notify the probate court of her breach and request her removal as executor.