Ever heard of 'rock bottom'? Sometimes a rift is the only way for someone to see that there is actually a problem.
My niece and nephew and son now all get along FANTASTICALLY. Best buds. But we couldn't see them for about 2 years, because they terrorized my son for about 6mo. I threw my hands up, said finis, and spent the next year coaxing him out of the shell he'd grown into (he became terrified of ANY other children... I specifically put him in preschool to work through that fear. After a few months of not being attacked by his classmates he became his previous outgoing self again.) It wasn't just other KIDS he was afraid of though, a lot of trust was broken with ME... since I kept putting him in a situation to get beat up or have his lovies taken from him.
I can't guarantee you, but I'd lay money that right now your sister is saying to herself and others "It MUST be the school's fault, because my son plays just FINE with his cousin."
The temporary 'rift' doesn't have to be drama filled. At least, not on your side of it.
"Love you guys, but until the hitting & name calling thing can be dealt with, we just can't be around."
When you're trying to ease back in (or prior to cutting off all contact until the attacks have ceased) have a Zero Tolerance rule. First hit, first name call... make your goodbyes (hugs and kisses to mom & dad & sis & bro) and scoop up your kiddo and go home. It may only be 5 minutes before it happens, it may be in the middle of dinner, but EACH AND EVERY SINGLE TIME... walk out the door. Don't delay. Scoop up, hug, and walk out.