Yeah, that's perfectly fine. And if you want to say "She does not hear me or my sister" it would be "Hon hör inte mig eller min syster" -- you can't say "Hon hör mig inte eller min syster", and you also can't say "Hon hör mig eller min syster inte", although you could say "Hon hör varken mig eller min syster" (varken = neither) but now I'm quickly getting carried away.
The idea is not that every possible English translation that is 'not grammatically incorrect' should be accepted. The idea is that you should translate things into natural sounding Standard English. Versions that require adding a special, less likely context won't be accepted.
That would be Hon kunde inte höra mig. 'could' is the past tense.
The reason 'She can't hear me' is an accepted answer is that you add 'can' significantly more often with verbs of perceptions in English than we would in Swedish. The recommended solution is still just 'She does not hear me'.
You'll probably find this thread very useful: https://www.duolingo.com/comment/8970470/Introduction-to-Swedish-word-order
The main answer (the one you can see on top of this page) is She does not hear me, but it's also acceptable to translate the sentence into She cannot hear me because English often tends to add can with verbs of perception where we wouldn't in Swedish.
The Swedish sentence Hon kan inte höra mig always means 'She cannot hear me', but the English sentence 'She cannot hear me' can mean either Hon kan inte höra mig or Hon hör mig inte.
The sound isn't perfect here. German ö or French eu are pretty good approximations, so stick with that. :)
PS In most versions of Swedish, there's a slight difference in how ö sounds before an R vs in all other contexts, so you might want to keep an ear peeled for this. But just keep listening, especially to native speakers, and you'll get it!