I've seen my little Emma eyeing the squirrels in our yard as well. She stalks them and sometimes I do wonder if she caught one what she would do. We had a bunny when we first got her, and she absolutely stalked it to DEATH from 7 weeks old and up. You could tell she did *not* want to play with it. Luckily my little sister had a bunny that needed a playmate and my family took the little guy in. I visit him all the time <3.. I just could not give him the freedom he needed because she'd just go absolutely nuts.. and it's so weird because she's SO sweet, loves all dogs and people.. but get a small animal in front of her and she wants to go get it!
I don't know if it has something to do w/her being a jack russell and yorkie? Hmmm, anyhow!
I hope that Peaches stops killing the little squirrelies! I don't think it has anything to do with her being mean.. I just think it's a natural thing. Maybe you could find some advice online on ways to distract her from them.. Good luck girl!