No, he it isn't that he can't tell the difference.
He wants both at once. He's a pig, but we are all pigs. Some of us are just better at hiding it than others.
The men walking this planet are the product of 160,000 years of evolution. All the ones that didn't want to bang as many women (multiples at a time, when possible) died-out 50,000+ years ago.
So yes, he does fantasize about you and your sister hooking up.
And I wouldn't blame him one bit. It's just how the world works.
That should make a great Thanksgiving discussion topic.