I don't know what to say about her folks if they came to you and said this. All I know is Thats their daughter and they will support her in the very end. I thought the same for a time too. It didn't work for me. You know your sitch better than anyone.
Yes you do have to let her go. It can be done while she is with you. As far as boundaries go like financially and you helping her out. She wanted this. Set some if you feel you need to. Don't get taken advantage of. Be calm and firm and tell her it was her idea.
You have to work it out with you ultimately.
I will never give anyone a yes or no answer to something like that. All I can tell you is take your time and really think things through. I never had the in-laws approach me and say anything like that. She does need to hit bottom.
This is your choice, You have to be prepared either way it goes if you give her a deadline. Think it through carefully. You come first right now. Think each scenario over and how would you handle it. How would you feel?