[susan53]

1. The whole dialogue is so unnatural and stilted that it really doesn't make sense to ask whether it "makes sense". The use of full forms rather than contractions, the use of "she", asking if she's "kind" for no reason at all, the use of "kind" rather than "nice" - and various other things all make it totally unlikely as a conversation. The dialogue would go something like :

A : Who's that over there?
B : Who? The girl with Joe? That's my sister.
A : She looks rather nice.
B : Don't be fooled by appearances. She may be good-looking, but she's certainly not nice!
A : Oh - why?
etc etc

I can't get although into this conversation in any way that sounds natural. It's spoken, and subordinate clauses are much rarer in spoken English than co-ordinated clauses. That's the real problem - not the meaning of although but that it necessitates a complex sentence in a context where simple and compound sentences are the norm.

2. Although is neutral in style and can therefore be used in any context.