Hello, I'd like to help you with your question.
It is very hard to deal with a narcissist. As you may know, Narcissism is a personality disorder which is a category of disorders that are difficult to treat with therapy, even if the person wants help. Everything about a narcissist is "me first". They lack empathy and only want to be involved in something that benefits them in some way. They do not hesitate to say or do hurtful things to someone else. When told about their behavior, they often find ways to make it the other persons fault or they just ignore the information.
Your father in law may have a disorder called Narcissistic abuse. This is where a person with Narcissism acts out and abuses others consistently. The person with this disorder is often suspected to have Asperger's or another disorder like it because of the seeming disassociation with their feelings and ability to hurt others without realizing the pain they are causing. Here is a link for you to learn more:http://suite101.com/article/narcissism-in-a-relationship-a113185
Your wife can try to keep her emotions out of her dealings with her father. Narcissists often provoke emotional reacts in others because their behavior is so offensive and hurtful. Your wife can train herself to not react and to remain neutral as possible. She can develop a few non emotional responses she can provide to just about anything he says to her, especially when he tries to provoke her. "I'm sorry you feel that way" is a good response to just about any comment. It leaves her feelings out of it, negates a reaction and keeps her father from feeling offended. It also creates a boundary letting him own the feelings he is expressing instead of your wife accepting them as about her.
If she feel that the situation becomes totally overwhelming and she cannot cope, or that she is being harmed (stress
and tension from the abuse), then it may be time to leave, even before she needs to. It may be against her culture, but if he is hurting her it is potentially harmful to her so she may have to overcome whatever consequences there are and leave early to protect herself. Prolonged abuse can become traumatizing and cause a variety of symptoms including anxiety
and depression. So taking care of herself is important. If she can, she may want to ask for help from other family to help her provide support for her father so she can leave.
She can also learn more about narcissism to help her find more ways to cope with her father. Here are some resources that will help: http://www.ehow.com/how_2113015_deal-narcissist-life.html
The Wizard of Oz and Other Narcissists: Coping with the One-Way Relationship in Work, Love, and Family by Eleanor D. Payson
Disarming the Narcissist: Surviving and Thriving with the Self-Absorbed by Wendy T. Behary
The Object of My Affection Is in My Reflection: Coping with Narcissists by Rokelle Lerner
She (or you) can find these books on Amazon.com or your local library may have them for you.
I hope this has helped you,