My thoughts and prayers are with you and your grandchildren. I pray for your son as well and hope he turns up soon.
If this were me I would do what ever it took to get those kids out of that environment as soon as possible.
Do you know where her parents stand in all of this? Are they involved with the grand kids? If they don't see a problem with their daughter and her life style and tend to put blame on your son they may not be a good choice for the kids if they are removed from the mothers custody.
I will keep all of you in my prayers.