ADDITION: I have just read your "So what happened?" update, so I'd like to update my advice.
With the added information about bio-dad's attitude, it would appear that he's neither particularly interested in his daughter's well-being, nor particularly mature. I would NOT be inclined to leave the child alone with him for even short periods. In fact, I would NOT be inclined to agree to the get-together unless BF agrees to some professional intervention first, counseling or family arbitration. Getting advice from a lawyer who specializes in domestic law would probably be a reasonable precaution, too. A rancorous BF is not a situation to treat lightly.
You don't say what the quality of your sister's previous communication has been with BF. If they have been disagreeing whenever they make contact, then he could be more interested in "winning" and stroking his pride than in being a dad. My first husband threatened to kidnap my daughter when I separated from him, not because he wanted to be with her, but because he wanted to hurt or control me. It was an unsettling time.
Besides getting legal intervention, it seemed critical to me at that time that I never raise my voice, act scared, snipe or criticize my ex. I avoided doing or saying anything that might further inflame his ego. I think this probably helped get things settled down again. We are polite acquaintances now, and my daughter still has her father's love.
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Original response:
You say "they" are planning to limit time and refrain from argument, but I'm not clear whether "they" includes bio-dad. It will help if all adults are in agreement, and ideally this conversation should happen before the visit, possibly with a counselor or arbitrator if feelings are too negative. Negotiating agreements like that don't seem to be the subject of your request, however.
The situation will not be awkward for the daughter unless the adults make it so. She's going to take the situation at face value. If BF wants to be called by a fatherly title, so what? It's only a name to her. If the concept is troublesome to the adults, they don't have to burden her with those more sophisticated judgements. Let it be a positive event.
If everybody's expectation is that the BF will behave as a bad guy, they will treat him accordingly and the outcome will almost certainly become what they expect (unless BF is a saint). But what if he's just a normal guy, wondering whether he can be there in a positive way for his daughter? What if he's as nervous about how he might be received as your sister is about receiving him? What if giving this thing a chance turns out to be positive? It is possible, and my rather complex family has worked out similarly awkward connections by proceeding thoughtfully and honestly.
My inclination would be to prepare the daughter for the advent of her father by explaining in simple terms what his relationship is to her. The analogy of certain daddy animals who don't stick around to be part of the family might be helpful. And then say that bio-daddy wants to get to know her, and suggest that it could be a nice situation. Just keep it as simple as possible, and as unemotional. If your sister tilts her daughter's attitude against BF, then it could be challenging and confusing for the daughter.
There are only three patterns from BF that I would be concerned about: If he's got a huge chip on his shoulder and inclined to say things to his daughter that would confuse her about her mommy or stepfather; if he's seriously dysfunctional, such as mentally ill or a substance abuser; or if he's a natural-born charmer who will win his little girl's heart and then desert her again (I've been that little girl – big ouch). In any of those events, I would want to intercede gently but firmly, possibly by taking him aside and talking about it.
It would be good to be prepared with some communications skills. A particularly helpful and mutually respectful technique is called Non-Violent Communication, or NVC. You can Google these terms, and find some role-playing examples on You Tube.
Good luck to your sister.