I think that was really thoughtless of your sister to give you such a present - of course, send you one if she wants, but as a birthday present ? I would have been really [censored] off.
The trouble is, she'll be so wrapped up in her new child, that thoughts of others and what they might like, will be totally out of the window.
I've had some really rubbish presents from my sister, but each one had thought behind it, so I was pleased because as Jen says, if you haven't got much money ( which is probably true as well )
'It's the thought that counts .'
I don't know what sort of relationship you have with your sister, but I know I would find it hard to say something that might cause offence, if you guys have a good bond.
On the other hand, it's offensive for her to think you would be happy with a photo of her child.
I would maybe say to her ' Look, if you don't want to send birthday gifts any more, that's fine, I'll just buy for your childs birthday.'