Tui are terrible to deal with. I say that as a travel agent for an independent agency (who books through hundreds of different tour operators) and who has to spend countless hours on the agent's number, on hold, to deal with them with regards to customer complaints/problems. They do not give a shit, and are very, VERY reluctant to ever offer any kind of goodwill gesture.
I would advise your sister to contact ABTA for advice, and then to fight her corner - maybe accept the offer of the new hotel but refuse to pay any extra. She hasn't arsed up, they have. If the hotel has been overbooked then they will be chancing their arm with every client that's booked in there and hoping someone will move. Regardless, no-one should be having to pay. For every travel agent I've worked for, when you screw up, you have to pay (ie the agent, not the client!). Once the client has paid in full, that's it - their holiday is guaranteed at that price as far as I know.
Tui's customer service is appalling and they don't seem to care about causing upset. With all these large agents it's all about the money, but you'd think they'd want to keep their customers sweet and pay for any changes, so their customers would book with them again.
Recently I had a client who were advised by Jet 2 that they had found out there would be an issue with the hotel they had booked - they offered them an upgrade to a MUCH more expensive one at no extra cost, or a full refund if they didn't want to move. On top of this they were getting £50 pp as way of compensation, whether they took the new hotel or the refund. They are great and easy to deal with, and genuinely seem to care about keeping their customers happy.
Just so you all know - Thomas Cook and Jet 2 are broadly speaking less expensive and have better customer service than Tui. I only really book them for clients if they're the only ones who have the hotel required, otherwise I try to avoid them. There's more complaints about them than anyone else, and it's me that ends up having to sort their shit out!