First off: if the teacher is concerned, it's probably worth talking to your pediatrician and possibly getting a referral to a child psychologist. Two paragraphs aren't enough for anyone to evaluate your niece, and an in person evaluation may be appropriate. Your sister should talk to the teacher in more detail (or her husband, or you, or whomever is most often there at the school) to find out more specifics, write them down, and take them to the doctor.
However, what you're describing above is not necessarily particularly abnormal. It is very normal for children, particularly first children, to have significant adjustment periods to new siblings. She went from 100% parental attention to ~30%, overnight. Regardless of the amount of work her parents put in to help her understand this would happen, it's completely impossible for her to have thought this out ahead of time.
That adjustment can take all sorts of forms, but it seems entirely reasonable to me that one adjustment she might make is to learn how to play by herself. She's still 3, so still in the range where parallel play is common; some kids around 3.5 do learn to play with others but some don't until 4 or a bit later (in my experience). It's also common to have "invisible friends", which the wall may well be in this case, at this age; this helps children work out socialization, which can be difficult to learn with others who also don't understand it very well!
I would suggest that her parents (And you, to whatever extent you're involved) simply continue trying to make her feel wanted and welcome. Find ways to get her "alone" time with one or both parents. Talk to her about her feelings. Read some other questions on this site and elsewhere about how to help older siblings cope with their new sibling. She will pull through this, and figure out what her new 'normal' is.