I find that very odd, if not hypocritical if, as you say, your sister-in-law is happy to watch supernatural and horror films. Does she watch them perhaps because she feels it's her duty to keep aware of what might be threatening and to be able to prevent any supernatural harm coming to her daughter? Or does she watch them with her daughter perhaps to frighten the child into keeping away from such things? Either way, I don't think it's very healthy at all - but who am I to judge?
Harry Potter is harmless fantasy - didn't we all read or have told to us fairy stories with fairy godmothers and wicked witches? Even "The Wizard of Oz" is still loved today by young and old, and I don't think all of these have inspired young people to experiment with black magic. And I don't think Harry Potter uses anything like a ouija board - we all understand Hogwarts is a wonderful, fictional world out of J K Rowling's imagination. Isn't there just a little part in each of us that would have loved to go there? But we all know it's fantasy, and without fantasy life can be very drab. Plenty of adults read it as well as children, and read sci-fi and other fantasy too!
I think your sister-in-law might be swayed too much by whatever kind of Christianity she believes in and has not or will not read the books herself to make up her own mind. If her church says "Don't do this!", then she will just obey without thinking it through. I am a Christian myself, and have absolutely no problem with it; I've read and enjoyed Harry Potter, and have given them to young friends to encourage their reading - which it seems to do! Your niece, I think, is old enough to make up her own mind - I doubt very much you would give her something unsuitable to read!
Anyway, the bottom line is that I do not agree with your sister-in-law! Perhaps you could try to explain the books to her - what does she expect her daughter to read? I personally would not allow any child to watch horror films, or those with sex or violence, as they could do far more harm than a little enjoyable fantasy. (And J K Rowling draws on the classics, and mythology.)