I agree that as a parent, should I be looking for care, it would be a HUGE turnoff if the person I was meeting with started trash talking the competition.
I would say, it's time to do what the others are not. Put together a great website, make sure your home is set up to it's utmost potential and take pictures to advertise. Take some pictures of all the fun stuff you do (even if it's things like coloring, at the kitchen table!) so you can show parents. Advertise in more unconventional ways than just kijiji, etc. (I always fall back on good old flyers, when I am really looking for clientele)
If it gets really tight, try offering more flexible options that is typical in your area. In short, make yourself stand out from the crowd.
And don't worry about the petty people around you. **Karma!!**