I feel really sorry for your sister. Sounds like she had a harsh, unhealthy upbringing, and does not have the skills to learn better. However, you can't change people. You could tell her the horrid side-effects of her behavior on her children. But if she is not in a good place, she may not be ready, willing or able to really hear you. Instead she will get angry, go into denial, or create some drama because of what you say.
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You have to think of your kids first. So I'd keep your kids away from her kids, certainly not be disappointed they were not invited, it would only be a hurtful, unhealthy experience if they were invited. And any conversations until then get directed to the been dip. It may take a while, but eventually your sister will get the idea, and have to find someone else to share her hurtful drama with. Sometime in the future if your sister is willing to listen, you could gently start to offer some advice. But in the meantime, been dip....
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You and your sister sound like you are 180 degrees apart, and it will be hard to find common ground to even open up such a discussion.Â



















