Thanks so much for all your help. I just dropped kids off and had asked the childminder yesterday to reconsider overnight and perhaps reduce her hours (so she can spend more time with grandchild).
She said this morning that she has made up her mind and that she is finishing at the end of this week. She has other children and I mentioned that they would need to be given notice surely (even if I was not given notice) and then she said 'I need to think about myself' and followed by saying 'I need to start another child next week'.
(she told me a bit of a fib last night about wanting to spend time with grandchild...)
So I think what has happened is that she has had an offer from another mother to look after her children (perhaps for more days per week) and rather than letting that opportunity go - she has agreed to start with the new children next week.
This is basically self centred, not to mention illegal (re the contract- thanks for your comments on renewal) .
Anyway- anger will get me no-where. But I suppose this is just a warning to other mums - that it sounds like your contract is not worth the paper its written on.
I won't fight it - its 4 weeks we are arguing over after all. I will find interviews difficult (I am already on garden leave) with kids but we will have to manage and perhaps get baby sitter in for extra hours. My intention was then to start my younger child in nursery in Jan (by which time I should hopefully have work) and my older one starts preschool in Jan too).
It is sad that a long relationship can end like this, she has provided excellent care to my 2 children and I had hoped to keep up the relationship (ie use casually when it was mutually convenient) - in the end she has gone for the money it seems and thought about herself.
Regarding her reputation - well- she was good with the children, but if I was ever asked to give a reference I would have to say that I couldn't rely on her to honour the terms of the contract - and this should be a risk to anyone...as you may be left in the lurch at a moments notice.
I had never realised childcare could be such a messy, nasty business.
Things were probably so much simpler in the olden days when grandparents used to care for our kids. 
I will try not to be too bitter.
Thanks for your support mumsnet users and yes it will bring me closer to my kids and save me some money in the mean time..so you are right there is a bright side too :)