J., I haven't read the other posts yet, but please ignore entreaties to keep her on. You are not running a charity. You need a person who will respect you as an employer, even though it is your home rather than an office. You aren't getting that from her, and it's past time to cut the cord.
You need to tell your children that Miss So-and-so will not be with you anymore before you terminate her. I would not have her pick up the children that day. Instead, ask her to meet you at MacDonalds, and you should pick up the children and take them there yourself to meet her. Talk to her while they play in the balls. Be kind and just say that you have decided after 8 years to make a change. If I were you, and if you have the means to do it, I would give her a month's worth of severence. Don't discuss the amount. Have a cashier's check that says "severence pay" in a sealed envelope. Also have a separate cashier's check for her final week's payment and have the bank write on the the bottom "final payment for child care services" or something similiar to that. Don't use regular checks since you are worried about retribution of some sort.
If she leaves something at your house, mail it to her. If she asks for a letter of reference, tell her you will mail her one. You don't have to be glowing in your letter, but you can be kind. The promise of a letter of recommendation can keep her from being terrible to you in the end here and also from doing something bad that she would probably regret later.
Do not have her come back to your house. It is a mistake - I have NEVER continued with someone once I let them go. Even most offices won't do that - why would you in your own home? No, no, no.
Your kids will be there and can come over to the table and hug her goodbye. Then gather them up and put them in the car and go on your way. You should have a locksmith setup to come that afternoon and change your locks.
She just really needs a change. She was good once, and she can be again, but it needs to be with another family. You need to REALLY revamp your expectations for your new nanny, J.. You fell into a pattern that caused your problems by not properly managing your current nanny. That's really on you, to be honest. Don't make that mistake again. Really sit down and write out your expectations, partly for her, but mostly for YOU. If she is going to be at your house all day, she needs to WORK. Paying her full time should mean she works fulltime. She needs to cook for you, wash your clothes, clean your house, and grocery shop. She needs to be on time for your kids, she needs to stay off her cell phone. She needs to leave the TV off too.
You need a nanny who will step up. But you have to step up too, J.. You aren't her friend. You are her employer. Be an employer. It will make your new nanny happy in a way, to know what is expected. And it will make you happy to not feel taken advantage of.
Sending you strength~
Dawn