In and of itself, sperm donation is not an impediment to baptism. However, there would be a question of whether or not your sister intends to raise the child Catholic. Even though she is, as you say, practicing, she is also deliberately scorning the Church’s teaching on artificial insemination and is intending to deprive an innocent child of his or her father. Those issues would raise questions to a Catholic minister of baptism (priest or deacon) as to whether the child should be baptized now or if the baptism should be deferred until your sister is capable of raising the child Catholic.
Your sister needs to understand that she has no inherent right to a child. If, due to the tragic circumstances of her past, she cannot marry, then she should accept that she should not attempt to “buy” a child through artificial insemination. A child is not a commodity or an accessory but a human person who deserves to know his mother and his father.
This doesn’t mean that your sister cannot exercise the feminine vocation to motherhood. She can adopt a special-needs child who cannot otherwise be placed, she can be a foster mother to children in crisis situations, she can be a youth mentor, or any one of many legitimate outlets for her maternal instincts. What she cannot do is to indulge her selfish desires at the expense of an innocent child. As you might remind her, she herself already knows what it feels like to be an exploited child.
