Never feel foolish for having feelings about a loss. You have every right to grieve because not only did you lose her to death but you never had a chance to know her in life. Your feelings are legitimate. I am sorry.
Damien, the grief you are feeling is real so don't feel stupid. I know what it feels like to have loved ones break off from the family. My older sister broke off from the family for 10 years. My brother who lived less than 30 miles from me stopped calling me and I had only seen him twice and talked to him twice on the phone in about 10 years before his death last month. He has two children in their 30's who I haven't seen or heard from in 20 some years. He wasn't a good father. He also has a daughter whom I've never met. I think she would be in her 20's now. I had another brother who lost visitation rights after a bitter divorce. He just gave up and I haven't seen his two daugthers except for once since they were little. They're in their 30's now too.
I think of my nieces and nephew every day. I live with the hope that one day, we'll be reunited. Sometimes I hear a stranger in a store calling out my neice's or nephew's name and I look at who they're talking to to see if I notice a resemblance.
Sometimes when people distance themselves from family, it's for reasons that are much deeper than what's seen on the surface.
I used to cry for those of my family that I don't see anymore. I don't now. I still miss them terribly. But I can't fix the past. I gave two of my nieces my phone number. They never called. I can't force someone to come back into the family fold.
Talk to someone about your feelings. NEVER think how you're feeling is stupid! It's NOT STUPID! You feel terrible about your sister's choice and not seeing her or your niece. I know. I've been there. But it was your sister's choice, not yours. All you can do is learn how to accept her choice and hope that she'll have a change of heart.