A few others have already said this in the thread, but I'll add my 2 cents.

My husband is bipolar but it didn't stop us from trying to have biological children of our own.  As it turns out, we haven't been able to conceive so we are pursuing foster care/adoption.  DH has said at times that he worried about passing along his mental illness to our kids and he's just as happy if we never have a biological child.  

But...

The two kids we hope to adopt also have their own set of challenges, including possible mental illness.  So we're dealing with it anyway.  

Having kids is like that box of chocolates that Forrest Gump talked about - you never know what you're gonna get.  

I think what is important is that your sister and her husband are talking about it now - preparation, even the mental kind, can do wonders for your ability to cope in the future.