Hey there I’m playing Broken Sword 2 for the first time. I’m at the spot where I have to ask Nico to cause a distraction but my character keeps saying there’s nothing to talk to her about. Any suggestions appreciated

Are you refering to distracting police officers in Quaramonte?
You've probably missed out some conversations on the way. First try to inspect the map that's hanging on the wall within the police station, then ask the general about it. Only then should asking Nico for distraction be possible.