First of all, this is still just a short-term reaction to an illness, and lots of kids go through that and then come out just fine, with no long term fears. But the most important thing your sister-in-law can do is to normalize vomiting for her daughter - we say things like, "and if you puke, then what will happen? what happened the last time?"
my 7 year -old knows that "daddy does puke, mommy does teeth" because my husband is freaked by dental things, but she doesn't realize how bad i have been myself. I think it's very important to be aware of our own responses.
Also, I think that, by having aware and empathetic people in her life, your niece is better off than most of us have been.
<font size=\"4\"><font color=MAGENTA><font face=\"Times New Roman, Times, serif\">It can, and does, get better with time.</font></font></font>