S.T.
depression often looks exactly like laziness.
i'm appalled that any therapist would think that children who have undergone the trauma of being removed from their family and sent to foster, even in the best of circumstances, don't need some help in figuring out how to adjust. i think that's your first line of attack- get those kids back in counseling.
i'd also invest in some family counseling for everyone. all of you are struggling to deal with this very disruptive change, including your daughter. a safe place to both vent and acquire more tools for your tool box is vital.
have you and your SO sat down and hashed out a parenting philosophy? most don't, and it's often okay, but in your family's situation you need the structure and solid knowledge that you're both on the same page.
include your niece and nephew in discussions about how to move forward. you don't have to take all or any of their suggestions if they're silly, but kids tend to adhere to the rules better when they've had some input into making them. for example, ask your nephew what he thinks the consequence ought to be for not doing his chore. he might surprise you.
you've seen for yourself that just telling a kid that being positive beats negativity doesn't work. this child doesn't have the experience or reference points for that to make any sense to him. it IS good to explain things to children, but what sticks with them is what they live, not what they hear. and in your nephew's case what he's lived has not been positive. you're not going to reverse that in a short time frame.
you've taken on a lot, and i so commend you for it. don't tough this out alone- get a really really good family therapist and arm yourself with the tools you need to build a strong family unit that includes these shattered young ones.
khairete
S.