Hey Susan
The lottery is for 10,000 riders to my understanding. Some years it fills up, others it remains open up until the day RAGBRAI starts. That's usually an effect of how hard the route is. My first year was really hilly, so it was harder and I don't think they met the 10,000 mark. The next 2 years were relatively flat, so it did fill up. I suspect this year it won't
I've never not made it, but I do register with a team. They say that this doesn't matter in your chances of being picked, so who knows what their method is. In all honesty, if you didn't make the lottery you could still do the ride. Getting into the beer gardens and such would be more expensive (they charge less if you have a wristband for the ride). And you supposedly don't get SAG support, but I suspect if you broke down and a SAG guy came, he wouldn't leave you there because you had no wristband!
So yes, I'm in for this year. As for the motel rooms, if the stop over town is big enough to have one then yes you can reserve a room. Like this year we pass pretty close to iowa city, so we're getting a motel room that night. But the rest are spent in campgrounds. It's good if you can hook up with a team to transport your stuff every day, and set up your campsite. Our team has a bus that's rigged with bunks and a shower. It makes it much easier. There are teams who allow new riders to join up with them. Having more riders makes the week's expenses per person lower. You can use the RAGBRAI message boards for that if your sis doesn't know any teams to hook up with. Some are bigger partiers than others, so keep that in mind 
Hope that helps. You should definitely do it. This year might be a tough year with all the climb, but maybe next year the route will be flatter.
"Only the meek get pinched, the bold survive"