So she's basically threatening to not bring her kids as often if you make her pay for holidays?? Charming.

Put your ad up.

Personally, I would send her packing now. I won't deal with people like that.

If you are unable to terminate immediately for financial reasons....fake it till ya make it! Slap a smile on you face, take the kids for the contracted 3 days and replace them as soon as you can.