First I'd like to thank everyone for the ideas and well wishes.... it really helps when wanting to tear your hair out!!
This is what's happened since this afternoon:
No luck whatsoever with the tracking number on my passport package. It may not have helped in the end anyway. When I called Passport Canada back this afternoon they said that even if they were able to pull my applications out of sequence with the tracking # (which they said would take between 8 - 10 business days), all they would do is mail them back to me and direct me to my nearest Passport office locally for faster processing. (??) She recommended that I start from scratch and order new birth certificates for my kids, and begin the process all over again and submit the new applications locally. She said to let them know when I get there that there that we have already sent some in and they would put a note on my account so that they don't process the original ones.
I got to thinking though.... what about the poster who said that CAA told them "if you haven't already applied for passports and are planning to go away during the march break... don't bother, you won't be getting them back in time". So even if I presented applications at my local office tomorrow, chances are slim that I'd get them back in time as there is barely even 20 business days left before I leave.
I thought about it all some more and then came to the conclusion that I won't be the only one in this predicament. I'm sure there are many out there that are just patiently waiting for their passports to be returned before their travel date and aren't the least bit worried because they don't have the benefit of reading all of this stuff on here! And it is very unlikely that the powers that be are not going to do something with all the angry masses, right?
So I called Air Canada to see what they've been told. The rep said that they have been told not to deny boarding to anybody without a passport just yet. They are doing a "phasing in period". She said that they have not been given any information at all about how long this phasing in will last, but that basically it is a grace period for the time being. Cool. She even ventured a hope (not a guess!) that perhaps the phasing in period would coincide with Passport Canada's backlog and remain in effect until things are caught up. They do not have any information about what the airline's policy will be regarding missed travel due to denied boarding in the future.
That's a bit of a relief for me. I have a slim hope that our passports will arrive before March 7th, (I think it's possible, and hope the OP is right about her theory of them being put in priority sequence and arriving just in time in most cases)
In the mean time I plan to order new birth certificates for my children just in case I need some ID for them if the passports don't arrive in time and we are still allowed to board the plane.
Plan C for me will be to get flights out of Great Falls Montana and drive down across the boarder to catch the flight there and put it on the almightly VISA card. There is NO WAY i'm going to miss this trip with my kids. I've saved for 2years to go with them. A dream that I didn't think would be possible when I started going through divorce 2 years ago. My youngest DD (7) has never been to see the mouse and I've always promised her we would go. There has been nothing more precious than watching her read Fodor's "DL & SoCal with Kids" each night before bed!!
So thank you again everyone for your support and I'll keep you posted (if there's anything to post!)
Liz