Hi, I'd like to help you with your question.
It sounds like your daughter has multiple problems going on. She is not able to be the mother she needs to be (lack of parenting skills), she is using alcohol and possibly drugs, and she is emotionally unstable. She has several risk factors that indicate she could be abusing the children. This combination means she needs help soon before she gets worse or the children get hurt badly. And if your daughter is having parties in her home, she is exposing her children to people she may not know well. They could take advantage and abuse your grandchildren.
You mentioned that your daughter had been in the hospital before. Do you think she would be willing to go in again? She may benefit from being inpatient so she can get sober and get the medications and treatment she needs. The only catch is that she must be willing to go. Hopefully, she would be.
Other options include having your daughter get treatment at the local community mental health center. She may be eligible for group therapy which is more intensive than individual therapy. She could also get support with caring for her children and possibly help in her home learning parenting skills. She could also get a case manager to help her in her home and in the community. To find the local mental health center, contact the United Way for the phone number and location. Also, ask about other programs in your area that benefit parents who are stressed and need support.
You can help by being there for the children until your daughter can sort out her issues. Take the children as often as possible, as you do now. The more they are exposed to a stable home environment and love from a caregiver, the better. Also, consider getting the children into therapy. Your grandchildren are already showing signs of distress with the hair cutting and asking about being loved. The other child cries when he is with Mom, which is the opposite reaction most children have. Both of these children need help before permanent damage is done and they develop mental health problems themselves.
Here are some resources that will help:
Helping Someone with Mental Illness: A Compassionate Guide for Family, Friends, and Caregivers by Rosalynn Carter and Susan Golant M.A.
When Someone You Love Has a Mental Illness by Rebecca Woolis
Intervention: How to Help Someone Who Doesn't Want Help by Vernon E. Johnson
You can find these books on Amazon.com or your local library may have them for you.
If you cannot get your daughter to get help, you may want to consider filing for custody of the children. It would be a hardship, but you would save these children from a life of distress and possible abuse. You could also talk with Children's services about options you have for temporary custody as well. They will be able to tell you your options.
I hope this has helped you,