What use could that possibly be to your ability to do the job? I would suggest it is not normal practice. Once knew a guy who name dropped a bloke who was detested by the interviewer.
Hope I haven't been misuderstood. I was just wondering what that qs on some application forms (Do you know anyone working for us? If YES please name him/her) is for. Regarding my friend's sister...well if I had the chance to meet her one day and after apply for a job in her company, I would name her. That's it. Surely nobody will expose his/herself for Mr. I-dont-know-this-chap, ain't? I wouldn't do it for sure.
Regards
PZ