This is a tough situation. I would be feeling the same way you do. In my own opinion: Unfortunately, it doesn't sound like she is doing anything illegal or anything to directly harm the children and that is how the authorities will look at it, I'm sure. Even though sometimes we are against the ways others raise their children, doesn't mean that it is wrong enough to take their children away. As long as the children are being fed and not being abused, there isn't much you can do about it, but hope for the best! Low income families and people who dress "dirty", smoke or drink soda aren't considered "bad parents" by CPS or Law enforcement unfortunately (for these cases). I'm afraid that if you took legal action, you wouldn't have anything to back up your concern and it would just cause a HUGE family fight, that would be just as rough on the children as anything else. My advice to you is to just try to stay out of this situation and pray for the kids (if you pray)...wish them the best and be there for them as much as YOU can. I think you should definitly keep your eyes open and aware and make sure there is no physical harm or anything else of that sort, but until there is (hopefully there won't be), I don't think there is much to do. The most I think you should do is call CPS and somehow not lead her on to think it was you that called, ha! I don't know, this is a rough situation. So, Unfortunately, in my opinion, you should probably ignore it for the most part. Ignoring it doesn't make you a bad person in this case, you love them and you care about their wellbeing, but like I said before, there isn't much you can do in this situation. Calling CPS is the only action you could really take, but I'm afraid they wouldn't find anything, and your sister would never forgive you. What I would do in this situation, is follow my heart and do what I think is best! If you don't take action, then you might regret it, if you do take action you might regret that too, so follow your heart and do what you think is best! In the end, hopefully it will work out in God's will.
I wish I had a better answer (not to say that I'm right).....but I wish you the best and I wish the children the best!
Take care!