Why is 'Is the sentence fine' wrong?

I've no idea. It would certainly be 'natural' or 'ok' to say "The sentence is fine". Make it into a question, it does sound kind of unnatural.

Is it wrong to ask "Is it fine with you that we meet at your house at 7pm?"

Thanks.

Fine means of very high quality; very good of its kind. "this was a fine piece of film-making". synonyms: excellent, first-class, first-rate, great, exceptional, outstanding, admirable, quality, superior, splendid, magnificent, beautiful, exquisite, choice, select, prime, supreme, superb, wonderful, sublime, superlative, very good, of high quality, of a high standard, second to none.

Fine doesn't mean the same as OK or natural (those are much less strong). To use 'fine' to mean merely acceptable or not unacceptable e.g. "Is it fine with you if I borrow the car?" is non-standard, mainly US dialect usage. I think that may be the reason you have been told that sentence is wrong.

See above.

It is acceptable usage in the United States, where "fine" is often used to mean "OK." I agree with Roger that it sounds awkward in a question. Contrex is incorrect to say, however, that using "fine" as a synonym for "OK" is allegedly "non-standard" usage. There are fewer that 70 million people living in the United Kingdom. There are more than 300 million people living in the United States. It is absurd to suggest that American usage is not standard when the entire population of native speakers of English (when English is their first language) outside the United States is lower than the population of the United States. I've never suggested that British usage is not standard, and i consider it silly, and in some contexts, offensive, to suggest that American usage is not standard. It is possible and reasonable to see differing usages as standard in their separate contexts.

Given that you have said in the past that you wish to learn British English, i suggest that you follow Contrex's advice. I also suggest that you take with a grain of salt any suggestions on his part that an American usage is not standard.

Setanta, I wasn't suggesting that US English is "non standard", merely that using "fine" to mean approval or assent on the merely-acceptable "OK" level is non-standard/relaxed/conversational anywhere although it seems to be slightly more common in the US than in Britain. I can see why a strict teacher might mark it down. I have to admit that in UK conversational usage people (including) me often say things like "that's fine by me" to indicate assent to a proposal or suggestion, although we wouldn't use such a construction in a formal context (that's what I think this is about).

It is perhaps a good idea here to point something out to Tanguatlay about the use of the word "fine," at least in American usage. If a man is arguing with a woman, and she suddenly stops the discussion, and says "Fine."--the man is in deep trouble. He is likely to regret what he has said (even if he is not certain just what it was that he had said that upset her) for years to come . . . perhaps for the rest of his life.

My first wife (who is British) is like that. If she said it three times, each time with increasing emphasis, that was especially bad. My present partner calls her "the witch" and will not be prevailed upon to speak to her.

In the US, fine has the meaning you say, and also the meaning you say is wrong.

edit -
I just saw Set's posts, and agree with him.

Thanks to all of you.