Ugh, I am disgusted and saddened.
It's going to be even more embarrassing when this child inevitably does something to seriously harm someone or something, and the parents are forced (by law or children's services) to face up, isn't it???
I agree that it's time to terminate. You have done all you can. I honestly think that you should say everything you want to say (politely, but matter-of-factly), in that letter. Leave it all on the table, so to speak.
Good luck!!!