They decide that it would be interesting and fun if they tried making love. I do see a possible problem with future relationships.
We all have some form of mental repressions, (which I think are necessary) and sex is one of them.
So, it seems to me, to answer whether it is wrong to have sex with your sister depends on which moral standard you subscribe to.
As an atheist raised Catholic, I would say #3 is the answer, but my upbringing (#2) would prevent this from happening in the first place. To me, it's more of a personal question rather than moral.
Incest to me is an uttermost notion of sexual deviancy (not surpassing bestiality), and in a biblical perspective I would argue that God spoke against sinfulness of such behaviours.
Incest damages the very essence of the family unity, whereas when a woman falls in love with another woman (or a man with a man) no family is destroyed.
I stop myself from thinking too much about the subject, and generally bring up disagreeable ideas about it.