Not to me its not a separate topic, and while I would have grounded her to the loneliness of her own room without any toys to occupy her mind until she apologized, I don't think you can make your sister change without one helluva messy conflict.
But you have provided no context to this one incident, and sorry I doubt this was her first time being disrespectful. When it gets to the level that other options don't work, what's left? Has she tried other options? Do you have kids yourself? I don't even know if you can talk to your sister, can you?
Bottom line is I never spanked my own kids but when they were 12, they NEVER cussed at me or to me. Ultimately parents are the judges of what punishment fits the crime, and doubt if your sister will take kindly to you telling her how she or her husband disciplines her own child in their own home.
We can debate the details but none of us, not even you can control what goes on at your sisters house and right or wrong you tread carefully at your approach to solving HER problems. Maybe this goes beyond just one incident, have you asked her? Or do you just judge from your own perspective? Or does one incident make them bad parents?
No, those are NOT separate issues. Not in my view.

