Skydnsr makes some good points.
This sounds like a bite looking for a place to happen.
Some dogs, as they get older, or any dog for that matter, will often not tolerate the antics of small children. You really need to put your foot down with the kids for teasing the dog. They need to learn this is not acceptable behavior. They may do that to the wrong dog one day and pay the price.
Agree to have a health check on the dog and thyroid could be an issue, among other things like pain, etc.
In the mean time, it might be best to not let the kids have access to the dog unless you are there to supervise. If she is crate trained, put her in her crate when they are visiting.
This is new behavior, I take it? Then the dog should have a thorough veterinary exam. Low thyroid can cause dogs to feel bad and to be more likely to bite. Same with arthritis -- it can cause the dog to feel bad and therefore be more likely to bite. There may be other potential medical causes. I'm not a vet, so I don't know everything that needs to be ruled out.
Once any medical issues have been addressed, you should consult a good dog trainer. A skilled trainer can help you figure out how to manage the situation. Part of the solution may be to train the dog, and part of it may be to simply keep the dog away from young children, especially children who treat the dog in the manner you describe.
The risk of a bite is real. The children are basically asking to get bitten, when they stick their faces into the dog's face and stare into the her eyes. From a dog's point of view, that behavior is at best rude and at worst threatening. In return, the dog is giving a warning that is being ignored. At some point, the dog may simply give up on issuing warnings and do what she feels she needs to do stop the children from harassing her.
Think how devestating it would be for a child to get bitten on the face and possibly have a lifelong scar and/or a lifelong fear of dogs. The consequences for a dog who bites a child are often horrible, as well. Sometimes the consequence for the dog is death.
I hope you will be able to expand your solutions beyond the two possibilities of letting a child get bitten or getting rid of the dog. If you can't find a solution -- and I know vets and trainers cost money -- then you really should place the dog in a good home without children. The most important goal is to avoid a disaster that is forseeable and preventable.
Well 8 years old is no "puppy"... I like to call my dog "puppy" to the end, but the truth is dogs get old and less playful.
Looking a dog in the eyes is very challenging to them. I will say my Westie with the full blown Terrier personality will look me directly in the eyes when he wants my attention, usually wants something to eat. You are correct telling them not to play eye-tag with the dog.
I doubt that the dog will bite, nip maybe, but not likely a bite. Still if they are face-to-face who wants to be nipped in the face?
There may be some balance of the grandkids being able to play with your dog, just not tease it. I recommend you try to let the dog know you do not accept any nipping - and good luck as it remains a challenge for me when I want to trim toe nails on our Terrier.