If no picture ever arrives, or if it's something like a blank but freshly painted wall I don't think you'd be in the wrong to pull niece aside next time you see her and let her know (gently) that you won't be sending her cash again in the future, but that you'd love to take her shopping and buy something within your price range that she really wants.
You wouldn't consider "2 gallons of paint in my dream color" to be an acceptable thing for her to spend her gift money on?
I know that a LOT of parents would say, "I'm not paying to repaint that wall just because you want it to be a different color. The paint that's on it will have to be good enough unless you're willing to buy the paint yourself."
I'd absolutely consider a couple of gallons of paint to be acceptable (in fact, that's why I suggested a gift card to Home Depot).
In your scenario, the parents have repainted the room reasonably recently but the child would prefer a different color. Then sure. So yes, paint would be great IF
that's really what the child wanted for her birthday.
But the fact is, kids rooms need to be repainted once in awhile, just like other rooms only possibly more so because they're inhabited by young people who aren't always really as careful as adults about things like fingerprints, tape, little gouges from moving furniture, and so on. If the room has never been repainted since before the child was born, then sorry. I do think it's the parent's expense. So if that's the case then, no.
But if she wanted some really lively decorations, or a specific set of bedding, or a big comfy funky chair, that would all fall into the level that maybe parents wouldn't necessarily feel obligated to indulge. So a really cool lamp, or wall hanging or something like that would be a fine gift.