What a sweetheart
I'd say her nightmares are NOT from what she remembers before. I think they're related to the present. She knows YOU, your routines, your love, etc., etc., now she's being told her mother's coming back. She doesn't KNOW her mother. In her mind, you have filled that role, and now the threat (in her mind) is you're going away and she has to go with a stranger. I'd advise more visits with her mom,(a pain I know because of the distance) so she gets to know her, and less talk, right now anyway, of how she's going to live with momma. It wouldn't hurt for her to spend some time with your mother, so there's more familiarity there too.
I hope your sister stays clean and sober....there's someone more important in the picture