M., you are such a nice person - but don't let her continue to walk on you, that's what she is doing.
What you consider rude behavior is probably just what needs to be done. A person like this will mistake common courtesy for a sign that says 'take advantage of me'. This is a kind of street-smart ethic and, in my opinion suggests that she comes from a questionable upbringing - I'd watch her child(ren) closely around mine if I were you. Of course you do not want to model rude behavior in front of the kids. She needs to be taught the lesson that she is mistaking kindness and class for being a chump.
I have had friends and neighbors like this, and it is exactly why I do not socialize with my neighbors. I learned this in a previous neighborhood - my current neighbors might think I am stuck-up or whatever but I do not care. I say 'hi, how are you' or wave but that's it. When you're stuck with a neighbor like this you have little control and I know how it feels.
Above all else, learn to say 'no' with no other explanation - a firm 'no' and then stop. She will object once or twice and you must reply again with a firm 'no'. It is good for your kids to see that part too (after all, it's not altogether unlike giving-in to peer pressure).
Once you have stopped her in her tracks with a simple 'no', then, take her to the side (where the kids cannot hear) and let her know that you were thinking about her the other day and realized that everytime you hang out or do her a favor it is leaving you feeling very dragged down. A true friend should leave you feeling uplifted.
Tell her everytime you see her heading over to your yard you feel like your privacy is being invaded and you feel afraid of what she's going to ask for next - ask her if she thinks it's right that you should feel that fear from a friend???....but you want your children to be able to play together.
She will likely find a way to keep doing it anyway - like I said, she will mistake courtesy for a signal that you are a doormat so you are going to have to be very firm without coming off like a b*ch.
Believe it or not, friends like this can end up being good friends once they recognize what they are doing to you and that you have limits to your good will.
You might need a favor from her one day - and she'll owe you, big time! :-) Good luck