Your childrens' safety must come first. Drinking as she does she cannot be fully responsible for childcare, no matter how 'together' she may seem. It's only a matter of time before something bad happens.
My teenage daughter begged me to stop drinking but I only lied more and hid it from her (not very well tho). She finally told me that if I didn't quit she would go live with her dad - that scared me.
If she has no job and no money of her own then cutting her off financially would force her to face her problem. As to "letting her fall", she's going to fall eventually, and if she's still responsible for your kids it might have very bad consequences for them. I'd say let her fall. I know you love her but this is her addiction and she must want to get better, and she won't as long as you're enabling her to keep on drinking.
I wish you the best with your situation but hope you can get the kids out of this mess before it gets worse.