I'd be miffed, too.
What I'd do is, for the next couple of years, give the younger niece an "experience" gift, not a physical gift. A special day out with Auntie, for example. A trip to the zoo, a joint mani/pedi, a visit to the Children's Museum.
Which isn't to say that the older niece won't kick up a fuss and demand that her parents do the same activity with her. There's nothing you can do to stop that. But you *can* be a part of the younger niece's life, you *can* make her feel special for a day, you *can* show her that her older sister is not the one who gets to have it all.