I don't think the formula will hurt her, though it isn't necessary at this point. The canned food won't hurt her either, but isn't she curious about and eager to eat other things? It would seem like other textures and flavors would be appealing to a child at 16 months. Is it that your niece doesn't want to bother to fix other foods? There is a good list of foods for little kids at the American Academy of Pediatrics website, maybe if you just start preparing things like those named, you could raise your niece's consciousness about variety in her little one's diet.
Ah, sorry, I see the little one is the niece and the mommy is your sister. Well, you might get into a sibling fight if you look like you're correcting your sister, but that wouldn't stop me from getting the list from the AAP site and trying some of the stuff yourself. At that age, my son loved veggies (cooked and raw) and cut-up meat, and a whole lot of other foods.
Formula is not needed at this point but there is a stage of formula for that age that has less calories, that is the ones she should be on if she is on one. You might get one of those and say you where at the store and saw it and it looked neat. As far as baby food there is nothing wrong with that either but she needs more table food and graduate foods to learn texture now, but some babies choke easy or do not like them, I would ask your sister and see when she tought about trying other things but not push anything on her or your neice when she is around!!! Mother's do not like interference with theri children. It just may be easier for her or she has never thought of it yet or in her mind does not want her to be old enough even though she is. There could be lots of reasons and it really does not matter at this point! Children who grow slow or have fallen off theri growth curve at any point I feel should stay on baby foods as they have added vitamins and are heathier then say eating macaronie and cheese or chef borardee things! Way healthier! If she will not get veggies with low salt (that is not canned) then it is healthier for her.
Speak to your sister about this. At 16 months a baby should be eating just about everything. Certainly normal table food is more heathy than that over-processed mush in jars. And as for formula, it is a waste of money to buy it, and a pain in the neck to fix it. Isn't it easier to fill a cup from a carton of milk?