My Niece Is Hitting My Daughter

If your daughter isn't coming home with bruises then I would say try to relax a bit. Of course hitting isn't okay, but its perfectly normal at this age. I'm sure Grandma is doing a good job, and your daughter will face aggressive kids no matter where she receives childcare. At least now she is with family, not strangers.
I would try asking Grandma every day when you pick up your daughter, "Did she have any problems with hitting today?" If you do that every time it will show Grandma how serious you believe this is and will open the lines of communication so you can see how she handles it.
The problem is not really the hitting 4 year old, but how your daughter, and her caregiver deal with the situation.

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I agree with the other answers here but I would add that rather than going to your in-laws with a problem to "discuss," go with a solution in mind. And then see if you can become a team about it. For example. I would say to the parents : "I've notice the kids are getting crazy about hitting each other, but I thought that we could give them an incentive. We tell them that if they make it through one week of no hitting/an improved report from Gram, then on Friday I will treat them to a Chuck E Cheese NIght." I would make the reward progressively smaller as they improve maybe just a trip to the park or the dollar store to pick a toy. But I add that if they go a month with no hitting then another big reward. Four years old should be old enough to "get" earning a reward. And it sounds like your in-laws may not know what to do with the problem as it is. It also may give Gram some leverage in dealing with them. But don't give up and send her somewhere else--dealing with cousins/pests is a life-long skill and it will help you deal with bigger family problems later too.
Just my suggestion. But you DID ask.

That is a tough one! But definitely not acceptable. I would talk to your SIL and brother, let them know the situation. I wonder where your niece is picking this up because a lot of children behavior is learned. Maybe she is just more aggressive in general. Either way, if your SIL and brother does not help with the situation (timeouts work and then taking things away), I think it's time to start finding alternative childcare. I do not think it's healthy to have your daughter subjected to this. It's definitely not a laughing situation! Good luck.

Yes you should try to mention something, obviously don't do it to undermine their parenting techniques but either explain that their child is hitting yours and rather then disciplining her yourself you wanted to bring it to their attention...or maybe discuss parenting techniques with them and see what they do to discipline their daughter and then say what you do to discipline yours...here are a few disciplining suggestions:

http://www.theskinnyscoop.com/search/discipline?utm_campa...

This post also makes me think about this question that I have seen on the skinny scoop where someone asked if moms out there discipline other people's children..here's what they responded:

http://www.theskinnyscoop.com/question/q/982?utm_campaign...