This, i assume is a very difficult decision for the parent. Is it a real adoption? Or is it something like "ipapa alaga" lang si child? We may have differing opinions on the matter but as long as the child's welfare is a priority. I dont see any issues. It is also possible that they have some sort of agreement that she will take the child back once she is back on her feet.
Could be good, could be not so good. In the first place, they should clarify the situation, to that "close relative" of theirs. Maybe it could be the easiest idea they could think of for the moment. But if I were the sister, I would just ask for help instead of giving the whole responsibility to other members of the family.
I have a friend who almost has the same case as yours. It is really hard if you have already been attached to the baby and you have raised him well then all of a sudden, you will be asked to return what wasnt yours to begin with.