Patch,
Kind of the same behavior here, from my oldest RAS, I told him I'd help him get his teeth fixed, and he's spending money, camping with the guys on weekends, having a grand old time, and buying stuff that I don't think is a necessity...
I'm putting a limit on how much I'll pitch in, until I see some responsible way of living.
IMO, it's hard to set boundaries when you have a little grandson involved....although it sounds like she's taking advantage of you helping her by watching the grandson. I think it's good you told her exactly how you feel.
Does she have an alternative plan for a babysitter, if you cannot do it anymore?