YES, a brother and sister sugar glider will mate and have babies. Any female sugar glider over 7-10 months OOP can be bred (and sometimes even earlier). It is recommended that litters be separated, males from the females, by the time they are 15 weeks OOP. Often females are not fertile until they are 7 months OOP, but they have been known to become pregnant as early as 5 months OOP. Males are also fertile when they are very young and will impregnate their mothers and sisters if left with them to long.
While accidental brother/sister breeding should be prevented, many breeders use this kind of close inbreeding to improve their animals. Contrary to popular belief, inbreeding (done carefully by serious breeders) is not itself bad. Inbreeding serves to retain and pass on the good points in a particular family of animals, while eliminating the bad. When animals are inbred (particularly close brother/sister breeding), whatever recessive traits are present within the animals become visible. The animals which display good traits are retained for breeding, those which have undesirable traits are eliminated from the breeding pool. In this way all the bad traits are weeded out of the line.
Inbreeding can be very useful tool; however, it is important to be very careful about not fixing problems into the line. In the process of selecting for good points, it is very easy to retain animals with bad ones. If these animals are used for breeding, these bad points can become cemented into the line. Along with conformation, markings, and color you must select for temperament, health, and other features which are important.
Another use for inbreeding is to produce animals with desirable recessive traits. If you want and animal with a desirable recessive trait, the only way to make more of them is to inbreed. Take for instance a Ruby Platinum. I you have a single Ruby Platinum and want to make more of them, the easiest way is to breed to a Platinum. This will produce all Ruby Platinum babies; however, if you breed one of them back to its parent, you'll get more Platinum.
Needless to say, brother/sister breeding is not the only kind of inbreeding. We topically consider close family breeding (brother/sister, mother/son, father/daughter) to be inbreeding. Any other kind of inbreeding is called line-breeding. Related animals who are not as close (cousins, aunts, grandparents) are used. This method is less likely to show problems within a line; however, the results take much more time to accomplish.
Stories abound about inbreeding causing major deformities, horrible temperaments, and dramatic health problems. It can, but only because those traits were already present within the line, and by inbreeding, became visible. If you do not inbreed, those traits can be passed along unseen, too occasionally surface in individual animals. Judicious use inbreeding can eliminate many of these problems; however, a responsible breeder will discontinue a line if they discover it produces a major defect.
This is not to say inbreeding is for everyone. It requires far more thought and dedication than just "putting two sugar gliders together." Fanciers use inbreeding as a tool to improve a line of animal which they have been working on for many years. They know their animals, and know what they are likely to produce.
We do not inbreed at Desert Sugar Gliders. Information is knowledge.