As a baker, if I had delivered a disaster like that I'd give the customer a full refund without being asked. Probably would have written them a check as I was delivering the cake. I once did the filling of one tier of a wedding cake wrong, and I wrote the MOB a check for a refund for that number of servings right after I set the cake up. She was saying that it didn't matter, but she wasn't the bride, and I didn't want to wait around to find out that it did matter to her before addressing it.

Not the right design? That's a breach of contract. Cake frozen and not able to be served? That's product not delivered as contracted. I say to go after her for as much of a refund as she's willing to give you, and push her on it. As bakers we're willing to push clients when they're trying to give us a hard time and not pay us on time, etc., but this baker gave your sister a hard time on a silver-foil covered platter! You should definitely get a refund.