Names can arouse highly emotional responses which can be hard to cope with. Hard, not impossible. If she believes that she is incapable of loving her own niece because of her name, then I think she'd find herself mistaken if she ever had a Claire niece!
My own one-and-only niece is Laine. Just Laine, no Elaine (though she's named after one), no mn, no nothing. And I really do not like it as a name; but loving the owner of it is easy! And since you'd only use it as a mn, I can't see the point of having tantrums about it.