Vividly recall the first time I knew my parents were naked in bed together. Stands out because they were never openly affectionate and I mentioned it to my next door neighbor as something very odd to which he replied, "Of course dummy. They're your parents."

Dunno how old I was, but it stands out because up until that discovery I had no idea my parents were sexual beings. I had a vague awareness of sex but I never associated it with my parents.
I think when kids are growing up, whatever's normal everyday experience becomes normal regardless of what it is to other people. So any sudden change in that normalacy will stand out.
Since nothing followed with your niece I don't think any further thought needs to be spent on the matter. For myself though, if ever blessed with kids (and a wife heh,) I'd never conceal my sexuality, my nakedness, or masturbation from them. I'd want them to grow up used to seeing me and their mother naked, pleasuring ourselves, and having sex. Trying to be sex-positive but then freaking out if your own kids see you enjoying yourself sends a mixed signal that'll stand out in kids' memories and probably become some kind of sexual problem. Whereas if it's all kept casual, routine, and normal it can be kept a simple matter of like, "We're having sex. Did you need something?" And not, "Oh my G-d! Get out! Shut the door!" And diving under the covers freaking the kids out.
"I'd rather be hated for who I am, than loved for who I pretended to be." - Me.