I just answered another post about a child's speech, and that child was younger than your niece. You and your sister-in-law are right to be worried. If your niece weren't so cute about it,if she were throwing tantrums because she can't express herself, etc, perhaps the doctor would have given your S-I-L good advice before now.
Tell your S-I-L to insist on two things - a hearing test and a speech evaluation. Tell her not to accept no for an answer - find a different ped if the one she works with won't help. The eval will give her the answers to her questions about what is expected and "average" for a child that age. The quicker she has this done, the quicker her daughter can start getting help so that she'll be ready for kindergarten. It is devastating to be a happy little child who smiles all the time, and then get hit with the "mack truck" of school where kids make fun of her because her words are unclear. My son had 7 years of speech therapy due to a hidden submucous cleft palate that wasn't diagnosed until he was 4 1/2 years old. If we had waited for a diagnosis, he would not be where he is today (honor roll in 8th grade.) I insisted on an eval at 2 years old and started speech therapy right away. It may be the best mothering "job" I ever did, where my children are concerned. In the grand scheme of things, getting my son the early intervention he needed certainly dwarfs every other job I have ever had in my life.
You can find lots of threads on Mamasource about speech development - perhaps you could copy them off and let your S-I-L read them. All my best to you both - you're a great auntie and S-I-L to try to help her!!