My BIL sexualized my baby while she was playing… am I allowed to be upset?

So my BIL (35m) and I (29f) have a contentious relationship and never really got along. I mostly tolerate him and see him only when I need to. My parent-in-laws pretty much forces us to invite them to family events or they throw fits and make the whole event awkward as hell. Well the other day, we had them over (unwillingly) and my baby (1.5f) was blowing bubbles. They were encouraging her by saying “blow the bubbles” and my BIL said loudly “gotta teach them while they’re young ya know”. Am I allowed to be upset? I’m not sure if I’m biased because I already dislike the guy but I think it’s incredibly repulsive and disgusting to think/say that about a toddler! Not to mention, my SIL laughter at the joke which is also such disgusting behavior. Please chime in bc I would really like to know how to react. I have this protective feeling to not let them around my daughter which will obviously illicit some feelings with my in-laws but I need an outsiders perspective.

PS. There’s no point talking to them about it. 1. I don’t really care for a relationship with them. 2. I really only care about my daughter in this instance and the relationship I will allow them to have with her.

EDIT: thank you all for commenting on my post. It’s clear how many times I’ve gotten gaslit to believe I’m overreacting to something they say and clearly been manipulated throughout the years to “keep the peace”. Regardless, I appreciate the advice. Unfortunately, divorce is a no go. I love my husband and frankly he’s done nothing wrong except be born in the family and he couldn’t control that. He is supportive and also in enraged at the comment. Thank you for making me feel like my feelings were valid and that my initial reaction was not an overreaction whatsoever, and in fact maybe an underreaction. I’ve nothing to report just yet bc we haven’t seen his family but we’re definitely doing the no/low contact with BIL and SIL. They just aren’t worth our peace nor worth having a relationship with our kids. Can’t say we didn’t try though bc we were honestly willing to bury our feelings for the kids. Overall, it’s unfortunate and one thing I’ve learned over the years it’s that you can’t change a person that doesn’t think they’re doing any wrong. One thing for sure is I will absolutely not tolerate that treatment when it comes to my kids.