A couple things:

1) Hiring help will only take away from your extra income. I've done it. Having one less child is about as equal as having one more and part time help.

2) You can tell the mom who is concerned about emergenies that she would be amazed how many children you can carry when there is an emergency. I've done three no problem just going out the front door to the stroller (FYI kids were all happy an nestled, no one was hanging on by a thread)
I've been asked this question and I'm on the first floor and all but one of my kids walk. I just look at the parents and tell them that I have two exits and I wouild do whatever needs to be done to get the kids out and if that means thowing two over my should and having three in my arms so be it.
What would anyone do with five kids in an emergency whether your in a house or a sky scaper?

3) This is a face to face but not a 'meeting' where there is time for emotions to run high, tempers to flare, and to draw out a coversation that is more of an FYI than a request. Pick-up time will be fine

4) your not crazy for taking on so many small kids. I've done it and it's super fun. I'd rather the group be close to the same wave length than have scattered ages. But, I would not consider another one year old. I'd go for 18 months and up so that all the children can get the amount and type of attention they need. Another one year old will definitely take away from the older ones who are becoming slightly more indepedant.

5)Simply tell her that you have thought a lot about it aand you have decided that you are going to start looking for another. Tell her how you will handle things so that everyone gets what they need and the attentiop they deserve. If she is paying slightly more for a lower ration than don't raise her rates for a good while so that they are at par with your area. I would try to find ways that this would be a positive thing, not only for you, but her and her child (always softens blows). Above all, be assertive and excited abotu your news. Beating around the bush or telling her in a wishy-washy way will give her room for argument.

Hope that helps

wow that was long (amazing what you can do at 2am when your child very awake and growing all her molars at once)