OP,
It is her day.
I can well imagine your father's hurt at her choice, but it is hers to make.
It will likely feel that she is making a big public statement as to how she views him and the position she places him in her life.
If he felt they had a positive relationship, it will sting.
This may not be true, but it could well feel like a very public humiliation on a day when the family are in the spotlight.
But it is her wedding and if that is what she chooses, it is her decision.
I can well imagine it will cause a rift.
She wants to include her late father on the day, and it is her choice.
She will also have to accept the consequences to her decision.
It is her right to make this choice for her day.
Likewise she will have to accept that this decision may have consequences.
If you generally have a good relationship with her, whilst you might empathise with your parents, try not to fall out.
That would be a shame.
Your mother is most likely feeling loyalty to your father and yes, appreciation that he did take her on all those years ago.
But your sister doesn't owe your father that appreciation.
I must agree with other poster's concerning her other step sister, of course she might also want her as a bridesmaid.
There could indeed be huge fallout from this in your family, it would be great for them if you chose cold water rather than petrol to add to the fire.