I started with the Red Box as the DM and my only players then was my brother, 11 and sister, 6 and it worked fine. I was only 14 at the time.
I play now with my 5-year-old with the mini's game and he loves it. Probably will move him into playing late this fall or next year sometime. When ever he wants to join Mom and Dad's game which doesnt use the mini's all the time
Bah, all this start off easy and nurture her crap. Save the fairy princess? I say make her fight Orcus!
Having kids in teh game can be good or bad, it all depends on teh level of maturity. i've had 12-14 year olds in past groups that have been more mature than adults I've gamed with. I've also had other experiences with kids that haven't been as positive.
Here's my suggestion to you though. I'm assuming that with an 8 year old sister, you are still kind of young, in high school at most. What I would do if I were you is start to teach her, but at the same time teach your parents. DM a game for the family once every week or two. You might not like the idea of spending time with the parents and family, but this will serve two purposes. First, it will keep your sister out of your game with your friends. Second, and aqt least as impotant if not more so, you can use this family game as an excuse to milk your parents for more gaming books, supplies etc. Why you'll need all kinds of new sourcebooks, minis, dice, etc to ensure your family gets the proper gaming experience together. And you wouldn't want to jeapordize that positive family time spent together would you?
My brother started playing RPGs with us at about age 8. She won't be good at it, and she very well might get frustrated, but it is something that, at its core, isn't too far removed from "playing pretend."
Also, my brother was a HORRIBLE cheater when he started playing. Littler kids tend to view any game as something you can "win" and so they'll cheat in order to make sure that they do. They grow out of it.
If you can hold off till the basic game comes out, that might be good, but if you want to use the regular rules, I'd get rid of attacks of opportunity, and encourage your sister NOT to play a spellcaster--it's a whole extra layer of rules to deal with.
Anyway--it can be done. You just have to be patient. VERY patient. If you have any questions, don't be afraid to ask.