It's all silliness. Yes, don't don't be judgmental of their child, but don't feel bad about being proud of your own. You have to decide for yourself whether to honor this request. Perhaps his wife is having some emotional problems or is having problems wtth motherhood or maybe marriage problems? It might be respectful to just lay off the topic of parenting all together even if you distance yourself from the brother and his wife. But if it is just pettiness, then just keep doing as you want.
However, I strongly urge you to be a wonderful, loving, close aunt and uncle to your niece. This is NOT her fault. GO to her shows, call her on the phone, send her cards, everything you should do. Your relationship with her is independent of this silliness. Don't punish her, regardless of what her parents do. That is a relationship as niece and aunt/uncle you want to last until she is an adult. And you do NOT want to interfere with the cousin relationships. Your niece AND your daughter will resent you and suffer if you let the kids' relationship suffer. IF your brother and sister in law are being petty, don't retaliate, be the mature ones.