I was in Egypt last December with my family - my 2 older sisters and 2 brothers. My sisters, from India, wore traditional indian clothes (sarees, and salwar-kameez). I wore long, ankle length skirts and loose tops everywhere. I also carried a large scarf with me and draped it around my shoulder whenever I felt it was appropriate (visiting mosques etc).

Egyptians are extremely tourist-frinedly - their economy depends on tourism heavily. As long as you go there with the right attitude and respect their culture, you shouldn't have any problems at all.

I did see plenty of tourists wearing shorts/short skirts etc - I wouldn't recommend it though.

If you are near Dahab, don't miss a trek in the Coloured Canyons - they are beautiful. Have a great time!