I agree that you must talk to your brother, and probably to his wife as well, about the problem. Be prepared for denials, accusations, defensiveness, etc., but just stick to your guns and your main points:
1. You love them and want what is best for them, and are concerned about this behavior.
2. You have to take care of yourself and your family, and it is not healthy for your daughter (or their kids!) to be exposed to this.
3. She needs help and you'll do whatever it takes to get her that help.
If this kind of thing continues, you have to be prepared to make her (and her husband as well, unfortunately) feel the consequences of her actions, even if that means cutting off contact. Make it clear that this is not because you don't love them - quite the contrary! - but that you are not willing to put up with it. Best of luck!
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"If ten million people believe a foolish thing, it is still a foolish thing."
- Anatole France
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