Are your siblings' friends off limits when it comes to dating?

Eh, personally I wouldn't touch it, simply due to that anything could go wrong and it could possibly ruin your relationship with the girl/family.

Since she is your best friend, telling her might not be so bad. You could even tell her that if it works out both of you could be sisters, but tell it like a joke. If she is as much of a friend as you think she is, she won't flame you for liking him. She might even hook you up with him.