Your sister has essentially taken in her niece but didn't really want too. She felt obliged to take her, because she's a family member. Given that your niece has been permanently removed from her Dad's care and hasn't had contact with her Mum for 10 years, I have to assume that your niece has perhaps had a chaotic and unstable childhood? That kind of environment, can lead to children displaying all kinds of behavioural issues, due to their upbringing. Is your niece difficult (for the want of a better word), with challenging behaviour? Could your sister be struggling if there's behaviour issues?
If your sister doesn't have children, regardless of the reason behind that, then her life is following a different path. She's allowed to be child-free and to enjoy her child-free life. Equally, we assume all women, simply because they are women, are maternal...not all are!
Personally, I think it's far better to be honest and say now, if your sister doesn't want to take on her niece permanently. Your niece is likely already traumatised from her upbringing, her living in a home where she knows she's not really wanted, will do awful damage to her self-esteem.
If push came to shove, could you realistically take on the responsibility of your niece? I appreciate you are looking after her younger sibling, but could it work? If it came down to your niece going into care or partitioning a room? If it really won't work, then unless another family member is willing to take her, then you won't have any other option, she will have to go into care. If she's lucky it might be foster care, but in all honesty it might be a group home instead.