Otherwise, this would've been a horrible downer. But the niece means Woody does still have love and joy in his life.
I agree. Plus the parts with Alan Alda made the film a little lighter for me.
"'Extremely High Voltage.' Well, I don't need safety gloves, because I'm Homer SimpsonnnZZZZZ--" - Frank Grimes
Since Cliff and his wife basically talk to each other in monosyllables, his niece becomes a surrogate person for him to share his interests and feelings with. I'm not implying anything sexual, but it does seem odd that the whole Soon-Yi mess began about two years after the release of this film.
On a cinemative level, I like how the movies that Cliff and his niece watch are used to bridge the two main stories in the film.