"The sister is in the city."
Translation:Soror in urbe est.
The most common word order for latin was/is SOV (subject-object-verb), with adverbs coming before the verb. Really, though, it's so variable due to poetry and nuance that it's hard to establish a standard word order for certain. Be sure to report anything if you think it should be accepted.
Yes, usually the most common word order is SOV, but here the verb is a copula, so the most common order is the copula-verb in the middle of the sentence. SVO
If it was your question, why "Soror est in urbe" is accepted, it's the answer. And also, even if it wasn't the more common word order (but here it is), it would be still grammatically correct in Latin.
No, you can't. The only occasion when "urbs" is declined in "urbi" is in dative singular, which is not the appropriate case to use in the sentence because we want to talk about a location the "action" is taking place in without movement involved. The way to do that is to use the preposition "in" followed by the noun in ablative case.
For a few words, there is another way to talk about a location the "action" is taking place in without movement involved: it is the use of locative case, which exists only for names of cities and small islands, along with a handful of common nouns.
"Domus" is among those nouns, which explain why we can say "domi" (locative of "domus").