1) Yes. Your Slingbox simply shows what's on your sister's TV.
2) Yes. I Apple Airplay with good results - iPhone 4
3) M2 will do the job - but I would buy a 350/500 because of the compatibility with the WDTV which will provide a stunning image. WDTV acts as a Slingbox 'catcher' - see image attached.
4) No - but I always prefer hard wired to wireless.