Every problem has at least three solutions.
The quick and dirty:
Convert to txt and from txt to mobi. In the final step make sure that the option to "Treat each line as a paragraph", in preferences for TXT input, is not activated. The "dirty" part is that you will loose all other formatting.
The slow but "better" way:
Convert to html and do a series of search-and-replaces using a good editor. That is the tricky part. You will have to examine the html to see what searches will work. First try to do find and replaces on all the correct paragraph tags and replace them with a special mark, like "PARASTART" and "PARAEND" there. Then remove all para tags. And replace PARASTRAT with a start paragraph tag, and PARAEND with a and paragraph tag. It might be easier to start by doing a search-and-replace for all the bad paragraph tags, and replacing them with a space instead. Whatever works... Finally convert to mobi.
The third way is the lazy way. Ignore the problem or get someone else to fix it.
Ask your sister to fix the word-file so the paragraphs are right from the start.