To answer your first question, YES, I think this is an awesome idea! I’ve given stories as birthday and Christmas presents before, and so far they’ve been very well received. I think it’s something about how homemade gifts (even stories) seem more special than store-bought gifts 🙂
Regarding your second question, I think it depends on what your younger sisters like to do. If any of them happen to be into graphic design or tech stuff like that, you could print out a copy of the story (with your older sister’s illustrations) and maybe one of them would like to design a cover or format it. Or they could help with brainstorming so the story is sort of co-authored by all of you.
If you chose that last option but didn’t really want them dictating the whole story, you could do two separate stories, one which you write and your older sister illustrates, and another which you co-author with your younger sisters.
Do those help at all?
btw, I LOVE your profile pic 🙂
"Beauty will save the world." - Dostoevsky