Nerfing knockback on any move would be absurd. All of Sheik's moves have incredibly low knockback except for tipper up smash, burst grenade, and vanish. Out of all three, vanish is most consistent in killing, and tipper upsmash is only not rare on stages with platforms aka battlefield and dreamland, and even then opponents have to be positioned to be directly above Sheik on a platform which isn't easy. The other times, it's a read. Vanish kills are always reads, and burst grenade.. well, it never hits lol
On the other hand, the most logical thing to do would be to nerf needles and perhaps her frame data. Nerfing frame data will result in Sheik getting A LOT worse. Nerfing needles would be the correct approach. In my eyes the perfect nerf (if such thing exists) is added lag to needles (not so much it would worsen our matchups by a lot however), and remove the windbox and second hit of vanish. Sheik will just have to remain a top 5 character, because nerfing her otherwise would give her the Greninja treatment.