Nanny here. IMO it is not an ideal situation for school aged kids to have to deal with nanny's infant. It will impact their regular schedule and activities (we can't go play at the park now, baby is napping. I can't help with homework or snacks now, baby needs to nurse, etc, etc). Also, it will be hard for her financially to not only be just working after school hours, but then for a reduced rate! (But I do agree that the rate should be reduced, regardless, since she would be bringing her child.)
She would be better off finding a family who is expecting or has a young infant to work with. It would be more fair to her charge to be at a similar age (same age appropriate activities, schedule, etc). It would be easier for her workload wise. It would be better for her to be able to find a situation with more hours, since she will most likely be making less per hour.
It would be better for your family to find a nanny without her own kids (or, perhaps, with a child close in age to yours?). You can help out your current nanny by letting her know your plans sooner rather than later, and also being a great reference to her. If you're worried about losing her prematurely (always a concern when giving nanny notice) you can offer her a severance/bonus if she stays until a certain date.
This.