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As far as being confused and thinking someone is taking her things, put your own emotions aside & find out what it is she is looking for and why - - if you start into a cycle of defending the kids, you will deprive everyone including yourself of finding a way around the problems. Get her a big box, usually you can find pretty ones covered in fabric at this time of the year - let the kids help her. Realize that it must be terrifying having things 'disappear' due to faulty memory. It is not easy to let go of first reactions, or your own feelings you will be happier if you can step away from your feelings and just deal with her reality as her reality - she will probably be a bit happier too.
Strife and disagreements are like sand in machinery - eventually everything grinds to a halt and nobody is happy. Be kind to yourself by letting go and trying new ways of relating to her. You sound as if you are a very caring person, I know how hard it is. I hope some of this helps, you may have to experiment but with a bit of luck hopefully you will find ways to make it easier for all while you care for her.