cherrybim: You say you “know of quite a few frum men who are affectionate with their neices.” Well maybe they are married to them. You are allowed to marry your niece, you know!!
Halacha does not differentiate between a niece and any other girl.
The quoted M.B. is in hilchos krias shema. There is a famous machlokes between the M.B. and the Chazon Ish at what each a girl is considered “ervah”. The M.B. held at three years old, while the Chazon Ish extended the age to about 6 or 7. He is a bit vague on the exact age. It’s whenever she starts looking too “girlish”.
The poskim say that this machlokes applies to hilchos krias shema and to hilchos negiah as well.
This is not a well known halacha and many are nichshol in it. I heard this from a huge posek, who told me that this is halacha, not chumra.
Also, there is a halacha that says it is disgusting and ASSUR to hug and kiss your sister. The Shulchan Aruch says the word Assur. It is not, however, the same issur as a niece or another girl.
The poskim say that any affectionate touching falls into that issur. An affectionate pat on the back from a brother to a sister also falls into that category.
This is also halacha, not chumra.
If you question this halacha, you might want to call a reliable Rov. These are very serious issurim and should not be paskened from a blog!