I'd steer clear of saying anything negative about your mother. At 6, your DD is old enough to repeat what she's heard (and if you do reconsile with your mother down the road, this may happen). The thought of Grandma being "sick," may also confuse or scare her. As you said, your 21 month old won't really know what's going on and won't be as affected.
The approach I'd take is something like, "Right now, Grandma and I need to take a time out from each other."
I have considered allowing my mother to continue seeing my kids, but just don't think I can do it unless she gets some serious help.
Now might be a good time to think about what you'd be comfortable with if you do decide to allow your mother to see your kids. My DH and I have agreed that our DS3 can see my parents with us, but cannot stay overnight with them or spend more than a few minutes with them unsupervised.