Friends (37m, 37f) Have a Difficult Child (7f), Wife (39f) and I (37m) Need Guidance

Hey ya'll, this is a bit of a doozy that's been building up for the last 1-2 years and I'd like to hear your opinions here.
My wife and I have become friends with a couple in our community. Our daughters are best friends their daughter we'll call Grace (7f) and and our Natalie (6f) and we have a small friend circle with some other parents/kids.
First, Grace probably has some form of ADD or ADHD, I don't want to speculate too much here but she is basically the kid that joins a group, steals the ball and runs away with it. She will constantly whisper things to my daughter about running to her house to get candy, doing mischievous things like litter her house with toys and garbage, screaming in kids faces for fun, and just generally being a jerk (I'll go into the worst of it in just a bit). You can't do something with Grace with out her ruining the time. My daughter gets roped in a lot, but she's a sweet kid and we're quick to jump on poor behavior if she shows that she's picking up on Grace's antics (this might be another story).
Grace is an only child and her parents are really really nice. Maybe overly nice, possibly over compensating for Grace's ill behavior. They are very nice to our daughter and invite her over, make cupcakes, play a lot, etc. for the last few months they've been really trying to coordinate more time together (vacations, pool time, dinner out etc) and my wife and I are starting to feel suffocated. Suffocated with Grace's poor behavior and always being around it, and suffocated with having to spend so much time with them while they seem to do nothing to correct Grace's behavior.
The bad stuff: On top of Grace being a bit of a jerk she's demonstrated that she's dangerous to herself and others. These are the honorable mentions:

1. Grace has one of those mermaid tails, shared it with Natalie last year and after about 1 minute decided she wanted it back. She pulled the tail which was wrapped around Natalie's legs, pulling Natalie underwater in the pool. Natalie immediately started crying and freaking out. I jumped in the water and reprimanded Grace right then and there "you never do that again. Pulling someone underwater is NOT ok no matter what the toy or situation, you could drown someone". I told her to tell her parents what happened. Her parents saw me reprimanding and asked Grace if she pulled (my daughter) underwater or if she just yanked (giving her an out), Grace admitted she pulled Natalie underwater. Their response was to say "that's ok honey, we need to be careful, and then the mom rubbed Grace's back acting like she didn't want her to be upset?
2. While her parents telling her to stop, Grace has thrown and blown confetti into my lit fireplace in our living room. Again, I had to reprimand Grace and tell that is dangerous and could start my house on fire. The parents stood by and watched.
3. While on vacation camping with a large group, Grace pulls on other kids pulling them underwater, while the kids cry and complain that they don't want it. The parents say nothing while this happens in front of them, other parents call out Grace and ask her to stop.
4. While on the same camping vacation, the parents were out boating while I'm preparing dinner for the entire camp. My wife is helping with our night's dinner responsibilities. Our other friend is with us. We're collectively responsible for monitoring 6 children of varying ages with Grace in the middle, my wife nodding when asked to watch, me oblivious. Grace snuck down to the water without any adult knowledge, jumps in the lake without a lifejacket, and starts swimming to her parent's boat as they're coming in. This looks and feels terrible on our part. Parents (dad) are not happy that we didn't adequately watch Grace. Our Friend had the talk, accepted responsibility on all of our behalfs. Meanwhile Grace demonstrates that she doesn't listen to adults and puts herself in danger, and we adults are in the mindset to never be in a situation to watch this child again.
5. The mermaid thing, again! Just last night my daughter comes crying uncontrollably and tells me that Grace tried to pull the mermaid tail off of her and "tried to drown me". The mom is now offering the mermaid tail to my daughter to use unhindered. Shocked that it's happening again, I said "I would rather you go talk to your daughter. If she pulls that tail of of Natalie and it drags her under water, she can't breath. She's going to seriously hurt someone". The mom has some kind of quiet conversation with Grace, Grace pouts the rest of the time at the pool while I try to continue small talk.
6. side story: They have a major junk food/candy problem. Grace is always sneaking candy out of their cupboard, supplying to my daughter, and going on crazy sugar binges. They pack 3 1-gallon size ziploc bags for the pool or boating - 1 gallon full of candy like swedish fish, another full of gram crackers and another of some kind of hostess sweet that they let Grace walk away with each to eat in a corner (I have to keep track of Natalie so she isn't over-consuming this way with Grace as it's very noticeable. We have completely stopped bringing any snacks to the pool and have to tell her not to eat "any of their food" even though they like to offer ("take as much as you want!"). We're constantly contradicting each other. We only ever purchase the snacks that our kids need to bring to school like granola bars, goldfish, etc. and so long as they aren't getting candy from Grace, we'll get them something at the snack stand at the pool (1 item).

This is where we've left off in the saga. My main concern is that Grace is growing up not having any consequences for her actions and puts herself and my kids in danger. She's already 7 years old and doesn't know or respect the dangers of water, fire, really basic things and she's just not fun to be around. If she gets in trouble it's clearly not clear to her what she has done wrong. She doesn't listen or respect adult authority. Her parents are constantly trying to spend more time together with us and our kids, arrange classes together, school tracks and sport programs, always together.
From my point of view, we need some space. I'd rather let my daughter play with other kids, difficulty is they are next door neighbors and would probably try to follow us if we moved. Yesterday's incident was really the first time I've said something in the vein of "you need to do something about this". I'm not really worried about losing them as friends at this stage as we're all capable adults and can handle our own. My wife and I have decided that we will NOT be vacationing with this family again, although without addressing 'why' I'm afraid this will lead to some awkward conversations and sneaking around without a larger "talk" with the parents. And we'll just have to call out Grace's poor behavior as it happens. I have been talked out of scheduling a "talk" about Grace's behavior. Our other mutual friends are experiencing the same frustrations, not living right next door.
Please help! This is such an uncomfortable situation. I'm a pretty patient person by nature, but this has worn on me. I think everyone would like to remain friends in an ideal world but I don't think we're going to like the person their daughter grows up to be. Should do "the talk" where I address the above concerns and just flat out say "we need to spend some time apart"? Will they get the message when I flat out say when they need to do something? I'd like some guidance. My wife wants to avoid awkward talks, but I'm afraid "addressing things as we see them" isn't enough and leave space to leave our kids in danger when around a poorly parented child.
Sorry for the length. It's a lot of kid drama :(
TL;DR Friends kid is intolerable to be around and dangerous to others, and the parents do nothing to correct it. We're stuck being around them a lot and need an escape plan or how to be adults better about the situation.


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