I agree with other who have said to not reward her bad behaviour by picking her up or giving her treats. She is most likely unsure of them and protective of you. So if you pick her up you are reinforcing her behaviour and either rewarding her being overly protective of you or fearful of the kids.
It is important that you NEVER leave her unsupervised with the kids. No matter the size of a dog, a bite is a bite and there's no going back from that. Having said that, before putting the issue in the too hard basket, I think you need to weigh up the likelihood of her actually biting when you have her with kids in a supervised setting against the chance that she quite possibly will always be like this and you cannot trust her around children ever.
The problem with locking her up every time the kids come over is you are not only not dealing with the issue, but you will be exacerbating her anxiety even further. You may be completely avoiding any chance in that particular situation of something going wrong, but you are also not giving her the opportunity to learn the correct way to behave. If you can be 100% certain that she will not come into contact with any other kids in her lifetime then maybe the problem just isn't worth dealing with. But if you take her out on walks, which I assume you do, no doubt you run into kids. So to, could you trust her if you had to tie her up and nick inside the milkbar for a minute if there's a chance kids could come up to her?
I've had dogs that are wary of children, but the best thing I have done with them is expose them to kids in a controlled setting and taught them that they're not only ok, they're a lot more fun than adults!! I feel if I had just ignored the issue and tried to avoid kids at all costs, I would never trust them in public, and I don't want to be nervous of what might happen every time I take my dog out, we have dogs to enjoy them!!