My sister bought my dads house for a $1.00 twenty years ago and put it in a life estate. My dad is currently living with us and our question is can she sell the house or does it have to be kept till he passes away.

If your dad has a life estate then she can't sell the house until he either passes away or signs a document releasing his life estate.

That is correct, a release or quitclaim must be completed for the interest in the house to go from your dad to your sister.