I agree with skysue...you need to terminate. Not only for your sanity but for the sake of your relationship with your sister in law. Because it is family, the typical termination letter would obviously would not be the best way. Obviously.

I would have a meeting with sis in law and tell her that for the sake of salvaging family relations, you cannot keep nephews in your care anymore. Tell her you will work with her to find the right dc provider. Check out local home dc providers in your area, offer to go with her to interview...give her an extra week or two than you would your typical 2 wks...in other words...try to make the transition go as smoothly as possible. In short, do everything you can possibly do to help your nephews find an appropriate place to grow and thrive. Just not in your daycare. I would even throw in that perhaps they are "not stimulated enough and need more of a Montessori type program".

Advertise and replace the 2 spots. Explain in your "Family" meeting with sis in law that you love your nephews, but that this is a business. This is your career. Your income. Your livelihood. You cannot wake up everyday dreading your nephews and blur the lines between business and family.

She might get mad, but you are being walked on. Big time.