heartmoonshadow I am going to be flamed by our 'wonderful, non-judgemental and sympathetic' MN community here, but I am going to say I can actually see where you are coming from.
IMO, a lot of people on MN hate FB with the passions. Any posts about FB will get flamed - regardless. So many people haven't actually moved with the times as far as FB goes and fail to see the significance in some people's lives because they themselves see it as a 'lighthearted fun thing to do'. Because some people hate FB and have light-hearted views about FB, apparently so should everyone else. Also, a lot of MNetters fail to realise the person they are talking to on MN because typed messages do not reveal the real person that we are. For all we know, we could be talking to someone with low self esteem, confidence issues, mental health and then you get unhelpful people who tell you 'you need to seek help' I am not for one moment suggesting that you have any of these issues, just that unfortunately there ar people who use MN to flame others because they themselves may have 'issues' they cannot deal with in RL so vent off on a forum.
Now to my point.
Being 'friends' with someone on FB IS a big deal to some people. It is a status of 'BEING FRIENDS' as it suggests. To unfriend someone, especially a family member when all other family members are still friends, is actually saying (to me anyways) that I do not value you as a friend, relative, person whatever as much as the others so I am going to unfriend you so that you do not get to see my life and be part of it in the same way as the others do.
It seems your niece has other reasons she is too cowardly to admit to, for unfriending you. I too would be upset if my niece unfriended me and kept all other relatives on their FB. HOWEVER, I would also be trying to seek why that would be the case. She obviously has a problem with you. You coud pursue the matter and seek the truth, but you will probably not get it or not like what she says.
My advice to you is move on. Leave her to her life and FB, do not make a big deal about it and back off from her. Let her come to you. You have every right not to trust her. I have trust issues too. Anyone who lies to me or does things in secret and purposely tries to keep the news from me, is kept at arms length. I hate being used by people and by those who are '2-faced'.
BUT for the record, I think yes, you have over-reacted by telling her not to contact you and to stay away from your children. She obviously wants to put some distance between you and I would say give her what she wants. Being a teenager, like everyone says, she may not want you to find out about certain aspects of her life, especially if you are (not saying you are) the type to talk about it so publically and embarrass her. She could, however, just simply restricted your access or made her posts custom only (as I do).
I think by posting 'Have I over-reacted?' you already knew you did, you just needed confirmation. I am so sorry you have received such a horrid flaming from it. It is easy for some people to be nasty when they sit behind a computer, laptop, tablet or phone screen. Chances are, a lot of people wouldn't say what they typed if they met you face to face.
So in summary, (I waffle a lot!), let it go. Leave your niece to her own devices. You have every right to be hurt and upset. But don't restrict her access to your children because of your trust issues. In a few years, she may grow up and realise what a wonderful aunty she has!