I found I liked BatMUD so much I let my sister make an accout on my computer since we share the same computer. Then as I was reading through the help section I stumble across the 'Multiple Characters' one. Well it says "You are NOT allowed to have multiple characters!" on the same IP adress at least, But I hadn't read this when I let her make her own char. Will I be getting in trouble for overlooking this?

Most likely at some point you will get in trouble.
The problem is that your characters are bound to interact within the game and there is no way of telling if its really your sister playing the other.
I don't know any good ways to get around this, but here are some suggestions anyways:

Have different IPs on your computers, rather than using NAT?
Use a unix shell on a different ISP?
Make your sister move out. :P
Use a proxy (if its even possible for telnet?)
Ask on newbie channel for more ideas.

If you notify a Wizard (or ArchWizard) about the names of your character and your sister's character, we'll put a note on them and you won't get into trouble.