There are a couple of reasons why you might use “sic” in indirect speech. For example: “The President said that he was looking forward to visiting Riga, the Lithuanian (sic) capital.” There are other ways you could present this, but you certainly couldn’t change “Lithuanian” to “Latvian” without misrepresenting what the President actually said.
(Any resemblance to the understanding of European geography of any actual Presidents, living or dead, is purely coincidental.)
Maybe, maybe not. I don’t feel very strongly on the issue. Indirect speech is more flexible and requires less rigorous checking (did he say “Lithuanian capital” or “capital of Lithuania”?), which are two advantages. This may be a difference between British and US styles, though.
I’ve just realised that in don willard’s example, it should have been ordinary brackets anyway, since they fall outside the quotation marks.