Translation:My older sister has green hair.
"My sister has green hair" must be true too. It does'nt matter in english. At least we know it.
Can someone clarify the difference between 绿头发 and 绿色的头发? Is the latter more ''formal''?
It has nothing to do with formality, but I think 绿色的头发 is actually preferred to 绿头发. As 的 is more likely omitted when there is a higher degree of integration between the attributive and the noun, it is common to see 黑头发, 白头发, 金头发, 红头发, etc. Green being not a natural hair color of human, it is not likely that we would say 绿头发 instead of 绿色的头发.
你的家人都很奇... (green haired older sister, small faced younger sister, one-eared green-eyed dog, etc)