Unless your sister in law specifically wants a camera with interchangeable lenses, or already owns a dslr or something and is into photography, I would never buy someone else an interchangeable lens camera. There's just a whole bunch of hassle for non-photo people that they usually really hate or refuse to deal with:
1. Carrying an extra lens - a lot of people don't like the extra hassle of having to carry an extra lens with the camera.
2. Changing lenses - a lot of people strongly dislike having to change lenses, and they don't like having to learn which lens to use when. Of course I could be wrong and your sister in law has some sort of serious interest in photography - but most people just find it annoying and can't be bothered to do it, so she'll only ever have one lens on it.
3. And If you don't change the lens on the m43rds camera, it has worse low light performance than the s95 as the aperture difference of the kit zoom is bigger than the high iso improvement in the m43rds sensor. m43rds is definitely better than the s95 for low light with the f1.7 pancake lens - yes - but without it I've seen several comparisons that have shown that it's worse.
4. And then they feel like they're "supposed to" learn about it and they resent you for it, not something you usually want to have happen with a gift.
On a technical level -
1. In good light with a kit lens, resolution-wise, it's difficult to tell the difference between an s95 pic and a dslr pic. If you resize them to screen size it's pretty much impossible.
2. In low the m43rds has the advantage only if you put on the prime lens.
3. The autofocus lag on current m43rds cameras (we'll see on the announced Olympus) is still only slightly better than the s95 and not as good as an entry level dslr
I guess I'm just saying that I think for someone who's not a photo buff that I think the small advantage of m43rds are completely outweighed by the additional hassle and inconvenience.