A situation like this is so frustrating because it can be hard to prove your side of the story in court.
I'm wondering since you said your MILs health is poor and she doesn't want to pursue this, if maybe dropping it is the best thing for her sake. It can feel frustrating not being able to make things right, but sometimes health and the stress-free path are best. If you drop it and cut him out of your life he really is the one losing in this because he lost you guys. He lost the support you guys have provided him and your friendship. Maybe someday he will wake up and realize what he lost over a horse.
I agree with you there. My MIL doesn't feel like the horse is important (fair enough), but I don't want him to think he can get away with this. He also has the horses tack (which was to be sold with her) and my old mobile (cell) phone that I lent him, and various other things he "needed" in his time of crisis. He had the nerve to call us "bad friends" because we supposedly bad mouthed a friend of his. It was actually him doing all the talking; we merely listened and offered advice on his situation. I guess people will say anything to try and justify their actions. I can't believe some people. It goes to show you that you can't trust anyone.