What a wonderful woman to take on such a difficult role and what a wonderful friend you are to stick by her!
I know it is hard to do, but the one thing these children need is absolutely to feel unconditionally loved. That means that, even if they regress as they go through transitions that would be difficult for adults, much less little children, they will be met with a loving, positive, "I know you can do it and I know you're trying your best" response.
A three year old cannot control all that is going on around her, and it is quite common to lose ground on recently gained accomplishments like potty training. Even though she "knows how", this is not a willful misbehavior. It's like trying to maintain all your normal rules of behavior and good manners while an earthquake goes on under you! Her request for having your friend buy her things probably goes back to how others in her life have shown love--maybe that's a way the grandparents tried to compensate for the mother not being there, or maybe that's the way her mother made up for it herself, by bringing her something when she had been out or gone. It might be helpful to tell her, in age appropriate ways, that there are lots of ways someone can give a "present" and show love. Let the little girl participate in coming up with things that feel good--a big hug, reading a story, drawing a picture, going for a walk--but don't completely rule out a small gift once in awhile. Change should come gradually.
The little boy, my heart goes out to that little 5 year old! He has been put in the position of caretaking with his little sister for so long. Maybe helping her do things is the only way he feels important! Even though your friend certainly didn't mean to, her interaction might have felt like taking away his only role to be important. Think about being a young mom who is unequipped to deal with ONE child, and then you have another! Think about grandparents, and a sometimes natural reaction to gush over the "baby", especially a girl. This boy may really just need to know how special and necessary he is. Giving him important "big brother" assignments to help the step-mom know what his little sister needs might be just the thing. Sandy can then become a teammate rather than an unknowing "usurper".
But the most important thing, for all three of the children, especially the 8 year old, is that they all know Sandy has a heart big enough for them. It is not their job to give Sandy security, it is her job--which she accepted when she took them--to make life more secure for the children. That means giving love, freely and without worries about what she might "lose" if they go to a new home. She will not lose! She will have gained so much by helping those children, and they will always love and appreciate her.
Like so many others, I strongly recommend getting support through foster care groups, and probably some kind of family counseling to help them all adjust and to help the children heal from whatever may have gone before.