1)The difference in our somewhat similar situation is I am not friends with EXW nor do we co-parent. She is still in anger/spew mode 8+ yrs later so co-parenting/friends is out of the question. I did send out a couple olive branches to rectify this over the years but it never progressed.
My advice is yes -Let her go. I don't think there is any other option. she will have to come to the conclusion herself that the problem lies with her and the grass is not greener.
2)advice - don't say anything negative(not always easy). Be a rock for your kids.
Our daughter was 11 when she left. EXW later reentered her life. She is now 18. Our daughter and I have a great relationship but I can tell through various talks that she has trouble dealing with her mother on a few different levels(why she left, why she will still say negative things about me,why she complains so much etc, etc, etc). Mostly I listen, occasionally asking a question to get her to think about things in other ways.
She has said often....Dad, you made this easier for me to go through even when I knew you were hurting.
So what I can tell you is one parent who is there, really there can make a difference.
