In view of what he has now said, if the Court of Protection papers have not yet been signed & returned by your husband & his sister they should refuse to sign them & make it clear in writing to him that he cannot sell the house & use any of the money for himself. They should also contact the CoP & make them aware of what is happening. Perhaps they should apply to CoP for deputyship themselves.
As already said, it may be that selling the house now would be in MiL's best interest but any new purchase should be in her name (assuming she is not mentally competent to decide anything different) & any money left over has to be accounted for & spent in her best interest. It seems you could not trust BiL to do that.
I don't know what the New Order you mention is. It sounds like the rule that a house cannot be sold to pay care fees if it is lived in by a relative over 60, but that is not new. If you ignore the issue of care fees, then what will happen depends on the exact wording of MiL's will, & on whether it specifically relates to the house she lives in now or is more generally worded about any house she owns. You say the will states the house is to be sold when BiL has found somewhere else to live. If there is no time limit placed on this it could be difficult to force him to take steps to do so.
Your husband & SiL could well do with some specialist solicitor advice, but for that to be comprehensive a copy of the will would need to be available.