I think we started handling it in much the same way you just did, Lily.
Setting a boundary that says "I will not be in the middle, or deal with ____ and ___.
I think that as long as we understand, and accept the consequences of these boundaries, we are in good shape. I mean, the consequence that your sister may actually respect the boundary, and may actually cut ties with you because for her it might be an all-or-nothing kind of thing. If you are ok with that going in, and you didn't state your boundary as a way to "get her" to change her behavior or see the error of her ways....that's what it's all about.
Good for you to get off that ride.