One other thing I like to tell the nieces is that even if you lose, don't just give up. Keep at it!
I tell them about chameleons, and how they adapt to their environment. I try to teach them to think about how they lost, then adapt! This is harder to teach the younger girls, because their recognition of the game-play isn't quite there, but the older ones get it and they surprise the heck out of you on how fast they adapt.
I find when you get them thinking, rather than knee-jerk reactions, they get very creative with how they play. Especially with the versus fighters. I remember one of my nieces asking me what would be a good character to fight against Blanka (cause on of the girls like to mash the buttons for electricity all the time). I showed her the fireball for ryu, and she got it right away! She can't fire it all the time, but she knows the concept, and makes a good competitive try at it now. Pretty amazing for a 6 year old!