This scenario is too complicated to respond to adequately in an advice column. This young woman seems to need a scape-goat but you couldn’t provide enough information in our format for me to understand why. For example: You didn’t mention your brother’s role in his daughter’s life. I also have no information about your and your husband’s relationship with her mother and what her mother may have been telling her about the rest of her family.
It is to your credit that you were able to forgive and to not assign blame to a child who was the outcome of the affair. You’ve done what you can on your own from your position in the family. But you are only one member of the family system that is still struggling with the reverberations of something that happened almost 30 years ago.
If you came to my office with this problem, I’d consider this a family therapy case; not one that could be sufficiently helped by seeing any one member of the family. I’d want to meet with the young woman and her two biological parents as well as with you and the step dad.
I therefore suggest that you consider talking with a licensed family therapist. Cut offs often have toxic effects in a family, but clearly you all can’t go on as you have been doing. You need to talk with someone who can provide guidance after coming to an understanding of the whole picture.
I wish you well.