Truth Seeker and Lady Fatima,
I personally think that you are both right.. Sin doesn not harm the holiness of God, for that can only happen if God Himself were to sin. However, God doesn't just love.. God is pure love. God does not demand justice, He is justice within Himself. God doesnot just demand mercy, He is mercy.
So whilst His holiness is not affected by our sin.. His other attributes need to be true to themselves as well. God MUST be true to His own character in order not to sin within Himself. The wrath of God is against sin and must be appeased, the justice of God demands the penalty for sin, which is and always been death, not just physical but spiritual death. The Justice of God created the place of eternal separation from God and all that entails, as a place for sin to be dealt with. The Love of God so loved man, that He does not want man in the place created for the devil and his angels, and the place where all sin will oneday go.
God is not a separate entity with each characteristic separate to Himself. Each characteristic are as much part of God as your fingers and toes are part of you. To deny one part of His character, is for Him to not be true to Himself. This He cannot do.
Does our sin harm his Holiness? No! Does our sin harm God? Our sin separates us from our God.. perhaps it's more true to say that our sin harms us more than we can ever imagine. Our sin is not just something we do that is here to day and gone tomorrow. Our sin is against the Holy creator of the universe. We sin not against ourselves but against Him when we act independently of Him and in that respect, we hurt Him.