Your sister is off her rocker. I can't believe she would have a problem with her own newborn niece/nephew being in the same building as her just because it's her wedding. You have offered a perfectly reasonable and manageable solution that will be far less disruptive to her big day than it you had to travel 40mins round trip to an air BnB.
You have absolutely no idea what sort of delivery you'll have or how your body will recover. Even if you're up and about immediately, there's no chance you'll want to leave your tiny newborn for even a few hours let alone overnight!! Honestly, my babies are not 13yo and 11yo and I still hate being away from them overnight!
I suspect your sister is jealous. Of course her wedding day is special, but having a baby is sooo much more special and I can understand that she might be feeling that baby will steal her thunder. But honestly, everyone at the wedding will know you've had a baby recently. Even without bringing the baby to the wedding, you're going to be talking about him/her all day because people will be asking. She is not going to come off looking very good - they will all be thinking she's a first class hitch when they learn that you weren't allowed to bring your newborn. While I'm sure you wouldn't tell them it was because she was worried baby would steal her thunder (ridiculously childish- I'm assuming your sister is a teen bride, right?!), they will work that out for themselves.
What an absolute self-centred, insecure, petty, childish girl. Honestly, I feel ashamed for her.
Also, sorry that your parents are caught in the middle. I'd be wary as your sister sounds like she could be a narcissist and situations like this can easily drive a wedge, particularly if your parents are easily manipulated by her.