I think "Que faisaient-elles dimanche?" should be also accepted as it sounds exactly the same.
I agree. I always report these ambiguities when I encounter them, but I don't know whether the Duolingo platform can deal with them other than by choosing a different sentence for dictation. (Or whether it is even possible to mark sentences as unsuitable for dictation.)
In a special context that could be correct. But in the vast majority of cases, "faire" without further context is just the generic verb, like "do" in English.
I think that "What did she make on Sunday?" [- "She made a cake."] should be accepted. But for the reason I explained it also makes sense that it is not. If you think of "make" rather than "do" when you hear that sentence it is a sign you are not fully immersed into French yet.