Sounds like the gateway setting on your sister's machine is incorrect. 98's networking 'wizards' are appallingly bad at this sort of thing.
Not being familiar with 98 any more I'm not sure where the setting is but you need to get into the IP settings for the network card (probably somewhere in networking in control panel - try the TCP/IP properties in there) and set the gateway address to be the IP address of the machine with the modem attached.
If it still doesn't work then for some reason the gateway (ie. the machine with the modem) is not sharing the connection still so you'd have to get back to me.