[QUOTE For the lie, is it better to admit it? Will the appeal drill on this?][/QUOTE]
Aside from all the other red flags (married right after meeting, short honeymoon), that's the big one. It's not just bad to lie to IRCC, it's illegal. Personally, they have created a huge nightmare for themselves. It immediately looks like a marriage of convenience, supported by the fact they both committed misrepresentation. Your B-I-L will likely come out of this OK, but there is always the possibility they may pursue charges. His spouse, as pointed out, is facing a 5 year ban, during which time she is completely ineligible to enter Canada.
An appeal could take a couple of years and I would expect a lawyer would want a $5K retainer just to look at it, given they lied. Unless they have changes that can overcome the reasons IRCC found to question the marriage, I suspect re-applying will result in another rejection (providing she hasn't been slapped with a ban from Canada). Realistically, if he want to improve his chances of sponsoring her, he should be moving to China for a few years to establish the relationship.