I don't think you are overreacting, I think you are just concerned and really you do have a valid reason to be concerned. However kids react to things differently. I remember playing GTA, Resident Evil, Silent Hill 1, Nightmare Creatures (Shut up, it was scary!) when I was under the age of 10. I turned out just fine. My brother, who was only 3 years older, also turned out just fine. We knew what we were seeing and doing were things that were not ok in real life, and we were constantly reminded by our parents that is was wrong and we should never imitate it. The only good thing about it was, because we had those games, we didn't constantly want violence or action. Hell, many more good days were passed on games like Hercules on the PS1, or driving games since my brother had this really awesome steering wheel. But, those were the days of PS1, where we weren't playing a torture scene. Nowadays me and my brother play other games, he is more into strategy games, I'm just into anything and everything. We turned out fine, if anything it just made us all the more disgusted with the bad people in the world.
However, telling kids they can't have these things when they see their friends having it, can bring out the "Because I can't have it, I want it" in them. But it depends on the kid, my boyfriend's 11 year old nephew isn't allowed to play GTA 5 but his friends do. He accepts why he can't play it, and understands why and never questions his mother about it and he's quite a mature kid, but he does want violent games and films because he isn't allowed them. They all react differently. If anything, show your sister the really bad parts of GTA5, just to make sure she understands.