TL told *me*
She's not happy, but not horrified (which I am).
That's wasn't obvious (to me at least) from your original post PP.

In that case, having known about this incident - and being the child's mother - TL in the best position to decide whether or not it was appropriate based on her ongoing relationship with this man and it sounds as if she is (at the least) tolerant of what happened.
Your dilemma seems to be that should you express your views TL’s relationship with this man, and perhaps also with you, may be irreparably damaged. TL is asking for your view here so, if you think the actions of this man were ‘horrifying’ then surely you must tell her that?
Where young people or children of tender years are concerned there can be no half measures when it comes to their welfare – they must exist in a non-threatening environment and any person tolerating their living in anything else but –for the sake of maintaining a relationship, or avoiding hard decisions about it, will only make matters worse for all concerned.
To my mind there can be no question of reticence here, your opinion was asked for – make it known and let the child’s mother decide what to do.