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I saw this sentence in a textbook, and I'm not sure how to read the meaning of the second question.
Come mai tua sorella non esce più con noi? Che ne è di lei?
What is the meaning of the ne è in the second question?
Is this an idiomatic expression formed from essere + ne? If so, what does it mean?
Yes, it's an idiomatic expression. It's used to ask about a person (usually when there has been no news in a while), so the meaning is roughly a mixture of "what's happened to her", "what's up with her", "how is she doing", "what is she doing" and so on.
As for the meaning, it’s “What has happened to her?” or rather “What has become of her?”. This idiom implies that you have not heard of her in a while, haven’t had the chance to get any information about her, and don’t know what her fate is.
It might be needless to point out that the meaning of ”ne” in this idiom is useless to understand the meaning of the idiom as a whole.
Anyway, with this warning in mind, you can construe that ”ne” as a sort of demonstrative pronoun (=‘da ciò’, “from that”). As you can see, the meaning of the pronoun is blurred.
That is confirmed by the Vocabolario Treccani, s.v. “Essere”, meaning 3e, where essere combines with a particle with no clear-cut meaning:
Avvenire, accadere […] con la particella ci o ne: che c’è?, che cosa succede?; chissà che ne è stato di lui.
Moreover, Luca Serianni in Italiano, Milano: “Garzanti”, 2000, § VII.55 wrote:
In molte locuzioni cristallizzate il valore di ne, locativo o pronominale, appare attenuato, quasi irriconoscibile.
