Should I protect my sister or defend my best friend?

I'm in a rough situation and need opinions. I'm not sure where the hell to reach out to people for something like this. I can't really go to anyone who knows me because I don't want to ridicule or embarrass my sister any more than she has been doing to herself. My sister has (undiagnosed, but very obvious) mental concerns.
Background info: My sister is a red-head with glasses, freckles, pale skin and not on the slim side. Growing up, she was picked on and bullied by EVERYONE for these things. She never really had many friends at all, no one showed up to her birthdays, etc.. She was also neglected by her father at a young age and was never really a momma's girl like I was, so she was always kind of alone. When she became a teenager, she was always in chat rooms and having online relationships with multiple people. Eventually she began lying about herself bits at a time - her real name, her looks, details about her life. It got to the point she would tell people at school she was adopted and her parents died, etc. (she doesn't look much like me or my mother so people believed it and thought I was lying when I said she wasn't).
Honestly, I think she was just trying to get sympathy and be liked. I think something snapped in her head because she is now an adult and still lies about very serious things and still cheats in relationships. It's like she can't help herself and like she's in another world. The lies she says, the timing, the people, the whole situation always varies but it's like she's in an alternate reality and believes her own lies.
Anyway, she started dating my best friend about a year ago who is like a brother to me. Someone very loyal and important in my life. He knows about her issues and he knew from the beginning what he was getting in to, but now we have found out she has been cheating with somebody who could put her at risk for many things. Since this other person found out he was getting in between a relationship, that relationship has ended and I just found out the truth finally today.
My sister is very dependent on her boyfriend/my best friend and I feel it would ruin her in many ways to lose this relationship/stability. At the same time he is my best friend and this is ruining him as well (he knew she may have been cheating, but it hasn't been confirmed to him yet).
I am usually very good at handling things but I'm torn between keeping her final secret (since the cheating relationship is over now) that she was with this other guy, and just tell my best friend he doesn't need to worry about that now (etc.), or if I should tell him the truth, or if I should make her tell him the truth.
Like I said, he leaves her and it's going to put my whole family in a rough situation and could make her more suicidal, etc., but at the end of the day wrong is wrong and he's my best friend so I kind of owe it to him to tell him. So do I protect my sister by finding another way to deal with this than confirming the cheating to him, or should I make sure he finds out?
I know this shouldn't even be debatable and I know how ridiculous it sounds. I can't even really explain what goes on in her head and what we've had to deal with with her through our lives. I know people don't relate lying and cheating to a mental illness, but if I could explain it properly maybe you could see. But anyway if anyone can give me their opinion I would be so grateful.
I'm trying to protect everyone. Has anyone ever had a family member with similar issues? how do you react? My sister and I weren't always as close so it was easier to "throw her under the bus" back then, but I'm an adult now, too, and being homeless taught me to protect my family and keep them close, and I feel this will ruin our relationship if I don't handle things properly.
Just so you all also know, my sister is not an awful person. She will give you her last bit of money, food, etc., if you were in need and she is always generous and giving to people (which gets her used often I might add). She's just got some problems she needs to fix somehow.