How do I deal with a very difficult sister?

My sister is a bitter, angry, sad woman. She was diagnosed with depression but YEARS of counselling and medication haven’t helped. One of her psychiatrists actually told me that she is a very manipulative person who is not as ill as she’d have us believe. My dilemma: My sister has a daughter (8 years old) whom I love very much. When my mother died 5 years ago, she requested that we watch over my niece and help my sister bring her up. I would really like to remain in my niece’s life but my sister is a nightmare to deal with. How can I sensibly do both?