S.F.
It's been my experience that the more information kids have on this point, the better their decisions will be. I've been very open with my two sons and I know they appreciate it (they tell me, which is sweet). For a while, when my oldest was in jr. high, he had the most bizarre sex questions every day. I asked why and he said all his friends at school knew he could talk openly with his parents about sex and they couldn't, so they'd ask my son to get "the straight story." Wowzers!
When is it too early? I'm not sure it ever is. All answers, of course, should be tailored for the age, but I think once a child shows interest, that interest should be honored with clear, concise answers, with your values system attached. If we don't teach our children, the "kid on the street" will and we may not like that information...or its results!
Kudos to your daughter for stepping up to the plate. Is your sister ready to be "grandma?" If not, she may want to get on the ball, no offense.
Good luck!