Hope your sister is ok very soon

I understand your sister's perspective, but I think right now you need to do whatever is going to be easiest on your nephew - no doubt he'll need lots of cuddles and reassurance. If you end up looking after him for some time then once he's a bit more settled in the new arrangmenet you could try other ways to settle and see how you go. You can't actually ruin kids with cuddles and they do learn to do things differently with different people.