I think all of the above advice is great. I guess I'd look at how much time she's with them. What you seriously think the repercussions of her time with them are? How your friendship is affected by it? If your expectations are realistic for their care?
I'm not insinuating that they aren't btw.
I guess I just don't think that people can expect someone else to "parent" their kids, only care for them. I think you have to go with your gut, but I'm not seeing the problem with what you typed other than that it sounds like she might be a little emotionally immature to not be able to keep herself rational about V's behavior. I called my mom crying when my little cousin told me she didn't love me anymore when I was babysitting her (she was 3)...I was only 12 though

I hope that I could handle it better now.
Anyway...good luck! I'm interested in this now since I haven't reached this stage of parenting now. So please KUP on how you deal with it if you get a chance.
I just reread your post and since you asked for honesty...my thought is that you need to reflect on the whole situation. I completely understand not wanting to break your child's spirit as this is a big issue with me too as a parent. Maybe I'm missing something in what you're saying, but I don't see what makes you worry about this in what you typed. Did she ask you to come home or did you just decide to do that? What in your gut made you come home?
Holy crap I'm rambling...time to cut this off. I have thoughts but can't seem to put them together tonight.
P.S. I'm glad to hear that you're busy. Assuming it's your business...congrats!