There's nothing wrong with being honest with yourself about your own feelings. I for one don't know how I'd feel; it'd depend much on the severity and frequency of the bullying--there's a difference between an occasional irritant and a frequent abuser. If you don't feel remorse at someone's passing as a result of emotional injuries you've sustained from them, you're not dishonoring them. The only dishonor in this case was brought upon the bully by him/herself by being cruel during life. One should be judged on one's actions, not on one's feelings.
One important thing to remember, though, is that there are presumably family and friends who were close to the bully who are guiltless in this matter and deserve to mourn in peace. Though it may bother your sister that people are speaking well of the bully, it's better to avoid speaking ill of the bully to anyone who may be truly hurt to hear it for now.
Another important thing that this brings to mind is that many bullies go through life without realizing that they are bullies, often because there were some people to whom they were genuinely kind. This is why it's crucial for people to reflect on their own actions, and make amends for instances in which they themselves were acting uncharitably.