Pam, I think your #1 argument is faulty.
If the family is eligible for the "allowance" then it shouldn't matter how they choose to use it. If they choose to both stay home and live off that amount - more power to them! That's probably not feasible but if they are very frugal maybe it could happen. If they choose to both work and find other childcare arrangements, that's their business, too. (Especially if it makes it possible for a willing Grandma to watch the kiddos!)
That allowance may also be used to compensate Grandparents for watching the kids but would not cost as much as regular daycare.
Personally, I think anybody that has to pay for daycare for 2 kids is probably better off financially to just stay home!