Pratt,
Youre right. It is the right of your sil to determine who should come in contact with her daughter. Your dear wife doesnt have the right to covertly take her niece to see her mother/grandmother, especially if the grandmother is actively shunning the niece's mother.
I think your wife wants, for some reason to keep peace with her mother, but if her sister finds out this will blow up in your dear wife's face. Does she really want to take that chance?
If your mil is pressuring your wife to see the child tell your wife to push it off on the sil, say something like this:
"I'm sorry Mom but "Sally" wont let me bring little Sally over."
That way she won't have to feel guilty, she's telling the truth, and she avoids pissing off the sister. Grandma may be upset but if she really wants to see the niece she should contact the mother of the niece and not take the wimp's way out.
Josie