Everyone I know seems to say that using a sand timer (hourglass) on shabbos is forbidden. The question is why? Is it because of sifting? Is there some other melacha involved? Is it actually forbidden?
The issue at hand is measuring. See the Shulchan Aruch siman 308 siff 51 and the Ramma who says the accepted practice is to not use sand timers.
See also Rabbi Ribiat's 39 Melachos volume 4 page 979. In the note section he quotes the Shulchan Aruch and says to see Shemiras Shabbos Kehilchasa chapter 28 siff 30 with note 70 where we find the Chazzon Ish saying there is a problem of Boneh and R' Shlomo Zalman's who does not agree.
It should be noted that measuring for a mitzvah is allowed. So as the Shmiras Shabbos points out, measuring time for a sick person to eat is allowed. This is true even if he is not in danger.
To answer your last question first there are opinions who are lenient, especially if the goal of the time is to measure turn-taking in a game rather than measuring the duration of time something takes. For example Rav Moshe Leib Halbetstadt paskens
Regarding a sand timer which has no lines but a fixed time such as two or three minutes, one who is lenient and uses it on Shabbat has whom to rely on, and one who is stringent and refrains will be blessed. (פרמ"ג או"ח סימן רנב במשבצות זהב ס"ק ז, לבוש סימן שח סעיף נא, והובא גם בכף החיים אות רסט וע"ע באות רעג).
Broadly speaking the main issues raised in the halakic literature fall under measurement and 'weekday activity' (uvdin d'chol). It may also be associated with the general prohibition of commerce which falls under a protection against coming to write.
Regarding weekday activity, Rav Shlomo Zalman Auerbach in Shulchan Shlomo 308 is lenient especially when used as part of a game, see also Tzitz Eliezer Vol. 3, no. 10.
A thoroughgoing exposition of this issue by Rabbi Daniel Mann, especially as it relates to a medical need, even on Yom Kippur can be found here