Yes, domestic/family issues more than likely have everything to do with the potty regression. It is common for young children to try to solve emotional issues this way. This poor child has so little control over this most distressing situation, she's taking control in whatever way she can get it, probably without consciously thinking about it.
Particularly if the little sis, who gets favored by Mommy, is quite a bit younger, perhaps even in diapers, the older girl may want to be more like an infant that needs similar care. In her own mind, that may win her the love and attention she's craving. She may also have deep jealousy of her younger sibling, and potty regression is a much-used way for children to silently cry for more attention and to express anger.
All behaviors, even in adults, are intended to meet some need. Unfortunately, young children don't have the wisdom or experience to choose very effective behaviors. Your friend would probably do well to read up on some of the most current parent coaching to help understand such behaviors and have some good, workable strategies to help the child communicate her needs better.
Lots of parents believe that punishment will get the desired results. In a case like this, punitive treatment of the child will probably only convince her that nobody's on her side, making her more angry, frustrated and hopeless. She could start acting out in other ways, as well.
Here are some fabulous resources for helping any parent understand, communicate with, and support their child better, while helping the child to understand that there are more effective ways to behave:
Raising an Emotionally Intelligent Child by John Gottman. Your friend can also google Emotion Coaching for lots of useful information. (Here's one good link to get her started: http://www.education.com/reference/article/important-pare... .)
There are also some terrific books working with related techniques. The one at the top of my list is by Faber and Mazlish, How to Talk So Kids Will Listen, and Listen So Kids Will Talk. The methods make for good emotional connections, resulting in happy, cooperative and (mostly) obedient children.
It the child is being rejected by her mom because she's a "handful," your friend may also appreciate Raising Your Spirited Child, by Mary Sheedy Kurcinka. Your friend can read its encouraging reviews on Amazon: http://www.amazon.com/Raising-Your-Spirited-Child-Percept...
Whatever your friend does, I hope she'll remember she has two obstacles that will require tremendous patience: (1) She's a stepmom, coming in late on a problem she didn't create. (2) The child is emotionally wounded. She shouldn't blame herself if helping this little girl handle her problems doesn't come easily.
And there's a possibiliy that the child has a constitpation problem called Encopresis. It might be a good idea to have a medical checkup so she can run the problems by the pediatrician.