How can she feel that it is okay for her to dictate everything about the kids?

She sounds alot like my brother's ex-fiancee. First thing first, when those kids are at your house, those kids are under YOUR rules, NOT hers. You can really change how she acts, concentrate on what you CAN do. When they're at your house, help them out to your hearts content. And you know what, you don't need to tell her everything either. Just tell the kids not to tell and hire a tutor. May not seem right, but it's the kids and thats what counts.