I put "She is less beautiful than his sister". I know it is easier with "her", but it souldn't be incorrect, right ? I'm pretty sure "sua sorella" just accords like that because sorella is feminine, not because it's "her sister".
It is only by context that you could make the definitive answer, so your "his sister" should be correct. However I got marked down for using beautiful, not pretty, so perhaps that is the issue here.