It's utterly sane to recommend something other than a dSLR in this case. However, you may want to start with an explanation as to why you think a dSLR may not be what they need (vs. what they want). If they're still insisting after you explain this, then there's no hope and it's not worth tanking a friendship or ticking off family. Let them shoot themselves in the foot--some folks gotta learn it the hard way; I know I did. And you never know, maybe they will put it to good use and not waste their money.

When explaining why a dSLR might not be ideal, I generally use a 2-3x cost metric (i.e., a basic dSLR setup is typically 2-3x the cost of the basic camera kit, due to needing additional lenses, a bag, flash, etc., so $1000-$1500 instead of $500). Then I make the analogy that a compact fixed-lens camera is like a Swiss army knife, while a dSLR is like a big red toolbox that you still have to fill with tools (full argument here). And then I mention the weight of my Canon bag o' gear: 10-20 lbs. (I bird with a 400/5.6). And suggest that having to carry that and a diaper bag while child wrangling (because this type of purchase is often prompted by the introduction of a baby into the works) could be cumbersome.

You may also want to arm yourself with some good phone photography websites, just to impress on them that it ain't the tool. :) If they're stuck on sensor size, maybe send them to the guesstheformat website. Or tell the story of what Ansel Adams went through to get "Monolith, the Face of Half-Dome" (i.e., climbing four-thousand feet with glass plates and a 20-30lb. view camera--and then getting it all back down again), and stress it's not so much the camera as the person behind the camera that takes the photo. (I.e., just because Itzhak Perlman plays on a Stradivarius, doesn't mean that buying a Stradivarius instantly bestows the ability to play like Itzhak Perlman).

If they're still with you, you can then make the case for an enthusiast 1"-sensored compact (RX100, Powershot G7X), a large-sensored compact (probably outside the budget, new but if they really want low light/thin DoF capability maybe they can find something used...) or, if they're ok with a camera bag, a used mirrorless setup.

See also: What do I need to consider to choose between dSLR, mirrorless, or a compact as my first "serious" camera?