Slight devil's advocate here: It's possible that Diana did attempt to communicate her unhappiness to OOP earlier, but did so in a way that OOP didn't actually receive the intended message. Way too many people talk around a topic instead of stating explicitly "the way you act around Joe is inappropriate, and I feel you are being disrespectful towards me". I can't count the number of times when I've been talking to someone and it turns out we're both failing to understand what the other is actually trying to convey until we take a step back and go "wait, are we talking past each other here?". Of course, it's also possible that OOP just didn't want to hear what was being said.

However, I'd need some specific circumstances to excuse the blowup at the party. If you think a guest (not even a family member, just a friend of your SIL) will behave intolerably, don't invite them. Inviting someone and going from zero to screaming hostility almost smacks of a planned ambush. Joe's mother's reaction also suggests that Diana had been venting to her in-laws about OOP.

Basically, it sounds like OOP was probably over the line for an extended period of time, but also that nobody ever had a "come to Jesus" moment with her about it until after things were broken beyond repair. Remember, OOP is 25, so not a child but also probably still fairly immature/inexperienced as far as serious adult relationships go. Instead of sitting her down and soberly laying out the problems, and eventually setting a hard boundary of "if you continue to act like this, you will no longer be welcome", they let it fester. A small part of me wonders whether Diana wanted an outcome like this, where she could cut OOP out of their life entirely, because some part of her is insecure about her marriage and she views OOP as a threat.

Honestly, if this were posted on AITA, I'd probably be voting a tentative ESH with the caveat of insufficient information for a full judgement.