I think it's more likely that OP would treat her niece differently because it would very likely hurt like hell to see someone walking around that may look like her daughter would have and uses the same name, but still isn't OP's Hana Grace. Which is another reason why this is a jerk move on OP's sister's part, and is another reason this seems like it's intended to be deliberately hurtful to OP. Not only will seeing and hearing about the niece hurt OP and her husband, but the chance of others in the family looking at her and NOT having a knee-jerk moment of pain and grief most of the time when they see her is VERY low. If OP's sister doesn't think that eventually her daughter WILL ask someone why her family can't look at her without hurting, she's either extremely unintelligent or doesn't give a shit how it hurts her daughter as long as it hurts OP. If OP's sister goes through with it, it's going to make a lot of family dynamics unhealthy for a lot of people.

Better yet, tell her if she doesn't knock it off you'll buy a dog and call it (Sister's name) is a bitch. And you'll bring it to all family gatherings too.

Maybe dragging an innocent child into this isn't such a good idea. The child didn't do anything wrong

The child would learn the name of their would-have-been cousin at some point and the child would then be wondering why the name is the same, and likely feel unhappy from it all. OPs sister would hurt everyone by doing this, even their own child. To OP, I'm very sorry for your loss. Please talk to your sister about it all, and have a family member or two with you to support you.

Wow, I liked that response so much and thought highly enough of it to actually go and figure out my username and password just so that I could like and comment. I've been putting that off for almost a month or two now, haha.

I totally agree! OP you just went through something many cannot even imagine and having your sister do that... Way out of line. Sometimes the family we're born with sucks. I truly hope the rest of them are more supportive and that you have an awesome extended family who respect you.