What about your Mom? Does she notice what's going on with your sister? I believe if it were my daughter neglecting my 2 yr. old grandchild [and I have one of each] I would sense it and "take her to the bathroom"! [that's where we had our "misbehaving" discussions when my Amanda was a child!
] The older children can voice their concerns but the little one can only "act" hers out. She probably hates the new puppy! Maybe your sister doesn't realize her actions ... perhaps you can "tactfully" point it out to her without causing a negative reaction? Good luck!