SR77- Heh heh, I'm not gonna comment on why some people do the things they do

But it's smart to think for yourself and you're asking the right questions.
When you wetsand touchups, the idea is to do almost all of the abrading on the raised, "extra" paint from where you touched it up. I last did it with a 2,500 grit sanding block, and I didn't touch the surrounding paint much at all.
If it's a keeper, I wouldn't thin the clear/paint any more than necessary for any reason. I wouldn't try to remove the etching from the acid rain, for instance.
FWIW, most companies don't tell you how much clear their products take off. AutoInt says a bit more than most, and their "paint correction cream", a rotary-use compound, is something that you can't use more than a few times without causing clearcoat failure. And that's over the whole life of the car. I honestly wonder how the cars that have been "aggressively fixed" are gonna look a few years from now. For the most part, I'd rather have imperfect, but original paint.
One last thought- consider that your sister might have very different ideas that you/we do about what's acceptable. And if/when it gets marred again, you're back to the same dilemma, with even less clear to work with.