How do I stop my sister from being so possessive?

Oh, just let it go. She wants to be part of the child's life and things like this are not important. Continue to call yourself Grandma to the baby and Mommie when referring to your daughter. Call your sister AuntieGram. You know she is controlling so just deal with it the best you can. Soon she will tire of it and move on to her own grandchildren. Just play nice. In a hundred years nobody will know about it anyway. Don't put your daughter or the child in the position of having to choose between you and your sister. It's just not right.