Oh no. That is bad luck.

Eh, maybe she doesn't like him? Could get lucky.

In an interview, you could request in a polite way they not contact your current employer, and she, if she has any integrity, wouldn't contact your manager, even if he's family. You would just explain that you'd like to notify your employer you're searching only when you're ready to submit a resignation and have references from previous employers, etc. A bit of bad luck that she asked if you knew him and he was your manager, but you should be able to handle the situation.

If you saw that documentary "Step Brothers" by Will Ferrell, you'd realize they are usually enemies, so your secret is safe.

It depends on how professional they are. I'd say you have a pretty good chance of them NOT saying anything, On the other hand, they probably won't hire you in order to keep things from being awkward.