B.F.
I am thinking I would invite the kids to play at your house but not let them back over there. Sounds like your kids are turning in to witnesses instead of friends. Yea for you that she recognized abusive behavior AND told you about it. I guess I would tell my child that she needs to stay sensitive to the neighbors kids and see if they really need them one day but never to confront the neighbor themselves. This is an adult situation and she should let the adults do any action required.