I personally don't see a problem with it, as long as it isn't a sister by blood. Cousin is fine imo.
What I've been wondering is, is Xiao Wu really not his sister?
I mean Tang San grew up without mother, but she should be/was powerful or special since her spirit has the same quality as the Sky Hammer and someone once said something like: "Tang San is the son of "her", how can he be common"
Coincidentally Xiao Wu, when she thinks back, it's only about her mother. No father? She can create her own spirit rings. Maybe it's an innate ability, maybe taught by spirit beasts, maybe taught by her mother. Maybe her mother is special?
Furthermore Xiao Wu has the Yearning Heartbroken Red. The story Tang San told was about two lovers unable to be together. The condition for it was "you must keep your beloved in your heart, with absolute sincerity". The same thing that Grandmaster and Erlong are doing (at the time GM tried the Yearning Heartbroken Red, it didn't work, because he was conflicted).
It would fit fate to pull the strings again: GM treats Tang San like his son, Erlong Xiao Wu like her daughter and then make them have the same fate like GM and Erlong.