Is the questioner sinful for shunning a girl and her family for a year due to an insulting incident she experienced, and is her returning of greetings and smiling considered hypocrisy despite her inner distress?

If the situation is as you described, then there is no fault on the part of the girl or her family, as the girl is not obligated to inform you of her brother's presence. Ease your mind, and take your precautions when going out. Do not cut ties with the girl and her family because of her son's actions, for no bearer of burdens shall bear the burden of another. It is permissible for a Muslim to shun his brother for a legitimate reason, and shunning is lifted by greeting. It is better for relations to remain natural, characterized by connection and affection. A Muslim's smile or greeting to someone he dislikes is not hypocrisy but rather a sign of noble character.