Wow...... I don't completely understand why your family feels they have to be guardians for your sisters kids, although I am glad someone is responsible enough. Maybe I am not understanding, but why isn't Daddy taking care of them?
You are in a very sad situation, but in the long run the children are the most important because they are affected the most. If Daddy is leaving everything up to you and your family, I think I would try to keep them away from her as much as possible IF she is going to play with their minds and emotions by coming back into their lives when ever it is good for her.
It is mind blowing that a mother can be so selfish, but there are many like that.
I still say, surround those kids with love and try to make things as normal as possible for them, they need some stability and I am sorry you have been elected!
The only other options are not good!!!!
Good Luck to you