Awww!!! Don't worry, children's hair tends to grow extremely fast. Your dad seems like he had her best in mind, not all dadswould even bother with their daughter's hair!
I think you are on the right track with massaging and washing her hair. There is a childrens growth forum on the boards, you should check it out. And maybe print some of the info for your parents so they can help out too! I don't have any kids so I don't really know what is best for them...but I would assume that for children, less is better. Have a look around the boards and see what you find.
Does she just naturally have thinner hair, or had it become thinner in places due to the braids? If it was the braids then maybe its best she takes a "breather". Tight braids can cause hairloss.
Again, I'm not too familiar with kids hair. But I know you need to be as gentle as possible. I'm sure the moms around here will help you out! Good luck, and she's really lucky to have a sister like you who cares so much about how she feels!:)
Also - when I was a child, I had hair sooo short and fine and thin that my mom had to use those little velcro barrettes in my hair...But as I got older, I just grew masses and masses of hair. So maybe its the same with your sister?