Frankly, I don't see how a color scheme can utterly ruin a party that will last at most 2-2 1/2 hours. Really. I don't see that as something to be that concerned about. It certainly isn't polite to criticize someone's choices about a party that he/she is planning. I think the point of a shower is to get together to be happy about a new life coming into the world. (Plus, to get presents for that new person.)
That's what I'm thinking. They're just decorations. Does it really matter? Is there a reason your sister will be particularly upset by pink? I hate pink too, but if someone threw me a party, I'd be pleased they did it, and not worried about the colours they chose.
I agree, too. At most, mention that your sister dislikes pink. When I saw the "theme is awful" header, I thought you were going to say it was something bigoted or a sales pitch or proselytizing or otherwise inappropriate to the point of being offensive.
It sounds to me like the issue here is that you simply think this woman has vulgar taste. Well, maybe she does. So what? What makes you so certain that your sister will be hurt
-- your word, and quite a strong one -- by something so unimportant? She knows her good friend's style and taste, and she knew it when she accepted her offer to plan the shower. She won't be surprised, and she evidently doesn't care. How does this even affect you? Are you sure your "Sis will be hurt" scenario isn't just a rationalization for interfering? This is her good friend you are contemplating insulting. I'm guessing that that would be a lot more likely to upset your sister than pink decorations.
Ask yourself this: if the situation were reversed (and maybe someday it will be), and you and your sister were planning a shower for this woman, would you do it up Day-Glo, which you know she likes, or would you exercise your own good taste?
Really, there is nothing wrong with the latter. Hosts typically entertain in their own style, even when it's somewhat different from the guest of honor's. That's fine; in fact, we'd all be surprised to see, say, a bridal shower for a grad student bride given by the bride's mother's friends as a BYOB pizza-from-the-box student-style party.
There really is no good way to tell a hostess she has rotten taste and should do things your way, even if your taste is better. Superior taste is not a license to be condescending.