2 child accounts with 1 parent email address? Is it possible?

No. Each account would need their own email.

Thanks. This should be sufficient along with my sister setting up parental controls to ensure that the kids don't purchase any games that are not appropriate - correct?

Just know that by using your own emails to create accounts for children, their Xbox accounts will forever be tied to your emails. All of their game saves, acheivement score, and purchases will need your emails to be accessed. It is always better to create new emails for child accounts so that when they get older, they can manage their own accounts without needing to use someone else's email.

Should be, especially if she doesn't add any payment options to their accounts.

Sorry but that content can not be transfered between accounts. Its just not possible!

Also you can not delete a parent account. You can shut down the email address, but that does not delete the account. In most cases the parent account is just an email address a password used by parents to give permission to their child to access Xbox Live.

If you know the email address for the parental permissions follow Vibroplex's instructions, they are the steps to recover a parental email/account.