I resonate with your post a lot actually. I have three siblings and a mother who all suffer from addiction and various mental health problems and (because I don't have, but are planning for them soon, kids yet) have run through this scenario in my head to many times to count at this point.

My criteria for judging which of these four will play any part in my future childrens lives is a simple question, "Are they working to improve their lives?". By this criteria, only my mother and one sibling will be allowed. Mother is still an alcoholic but is holding down a job and has cut back her drinking significantly. She'll be more supervised in her role as Grandma, but I generally feel she could make a contribution to raising my children. Sister is an addict but has been sober for 2+ years, just completed medical assistant school, and is holding a steady job. Still a little flighty, but her effort is showing even if she complains a lot.

My other two siblings are still feeding their addictions and letting it consume their lives. They've done nothing to better themselves or improve their condition outside of committing crimes and relying on my father.

It sounds like your sister falls in to my first group and I could see being an aunt being a real help to her recovery. You need to be firm with her like I will be and state, "I want you to be a part of my child's life but there are conditions". Obviously these include things like remaining sober but the other guidelines are up to you. Your wife should also be a part of these conversations so she can see how you're working to protect your child but she also needs to be accepting of the fact that your twin is a huge part of your life.