You and your husband need to decide what type of relationship you want with this child and if it is not equal to your relationship with your bio-child, them force a conversation between child, mom, you and DH. It doesn't need to be elaborate, but at 7, she needs to understand enough to know that she is simply not be rejected.
With that said, if you all have to time, energy and love in your heart, there is a little child who it looks like could desparately use a family. Regardless of your decision, this child is your daughter's sister, so you need to remember that your decisions affect her, too.
My husband and I have both lost parents (his mom/my dad). His dad re-married and stepmom is 'Grandma'. It is the same on my side of the family with my granmother's 2nd husband. I am so grateful that these individuals have 'adopted' my son like one of their own...they didn't have to. It is not my son's fault that he came into this world with loved ones 'missing'. When we talk about Grandma and great-grandpa, we don't make a distinction about them not being biological. It has enriched our lives, not complicated it.
Best of luck to you!!