No, this is not just how kid relationships are, but this is how many kids behave because they are allowed to. Because your sister is using diversion instead of consequences, there really is no stopping your niece. She is totally allowed to be a brat by not having consequences for the behavior. If you can't get through to your sister that her daughter is causing you this much grief and convince her to step up the discipline, than your only choice is to avoid them or just suck it up and accept it. But there are little things you can do.
It's no fun for you or your daughter, and being around bratty kids is never a good thing for kids who arent' allowed to act that way. It's confusing and they end up the brunt of things. However, since it can't be avoided, it can be a learning opportunity if you decide to be around them. You can set an example and practice giving your daughter boundaries against brats.
I couldn't believe some of the bratty things my daughter started when she got into daycare. When I saw some parents "not in action" at some gatherings-birthday parties etc- I totally understood how the kids got that way. I just rolled with it and kept enforcing her discipline and explaining that she needs to be good if other kids aren't AND that she should tell them when they're being brats and feel free to stop playing with them.
We were at the park and this 5 year old was fully bossing my daughter around who was 3 at the time-calling her scared, forcing her to pay, yelling at her, telling her she was a slow runner. Her mom was right beside me on the bench and didn't say anything! My daughter was starting to look sad and was trying to keep up with the brat and following orders. I called my daughter over and said, "Sweetie, if you aren't having fun because that girl is being bossy and not being nice, you just say 'No thanks, I don't want to play' and go do whatever you want." The I smiled all light heartedly at them mom like, "Kids-what can you do?" My daughter was so relieved and said no thanks and ran away. It's good practice for fending off bullies later (and there will be plenty with these friggin' parents.)
At my friends house, where her son is always setting a bad example and being a terror, my daughter will start to act up too, but I'm always right on her about it enforcing consequences. She'll say, "But mom, he did it" etc but I'll say, "it only matters what you do. You know the rules." My friend usually tightens up on him when she sees my daughter is getting in trouble. If he's mean to her, I tell her to stop playing with him and do something else. I tell her to tell him to stop the behavior as well. It's a way to make my daughter do what his mom should do and what I cant' do. It may not be "fair" to my daughter, but life is unfair and it's great practice for her. My friend feels awkward but whatever. My daughter is very confident and stands up to kids older than her at the park now, and she even stuck up for another girl who was getting bossed around.
At home if my daughter and son are not sharing well, I'll say if they don't stop whining or fighting immediately the toy is getting taken away and they are both getting a consequence. They stop fighting immediately at ages 20 months and 3 1/2. I don't care what happened or who started it, they're already learning to resolve their own conflicts since I don't help out the tattler or put up with the bad behavior.
If your niece is being mean and saying mean things to your daughter, you could ask her if she thinks your daughter is having fun when she acts like that. If she says no, you can say, "you're right, my daughter and I are going to go play somewhere else." If she says something random and bratty, you can say, "Ok, daughter, lets go do something else." Either way you've proved your point without scolding the niece or confronting your sister.
You can prepare your daughter before hand like, "Now remember, if your cousin says anything mean, tell her you don't like it. You don't have to play with her" etc.
Try not to dislike your niece. this is 100% normal and 100% her parents fault. Many many kids are like this for the very same reason. She would not be doing those things if she got consequences for them.
Also, in those "moments of conflict" with my kids-I'll give them the calm information that they'll both lose the toy and get a consequence if I have to help them figure out the situation, and then I ask if they need my help. Of course my daughter says they'll handle it. In a minute when I hear they've moved on properly, I run in and say, "WOW, you guys are fun and AWESOME!!! CAN I PLAY??" and we all play for a while as a reward for the proper behavior. You can't give a consequence for the negative to your niece, other than to leave her alone, but you can reward her when she's good like that-so be sure to do that too!