<QUOTE["
The demodex is not contagious so once his ear mites, & everything else clears up then they can PLAY !!!!"]QUOTE>
Demodex are mites and they can definately go from one pet to another -- even to a human in rare circumstances. Here is a site you might want to read through.
http://www.thepetcenter.com/exa/dem.html So the mites themselves are contagious and not hereditary, in fact, most dogs will have some -- the loss of immune fighting ability can be hereditary and not contagious. But young puppies can be more susceptible to the demodex mites, because their little immune systems are not fully developed yet.
You are fortunate to have found a vet to diagnose this so soon. I lost a Sharpei years ago to this. It took a third vet, after months of getting progressively worse with futile treatments, to finally give a correct diagnose. By then, it was too late as her CNS was affected by the underlying immune problem.
Your little ones are fortunate to have such a loving caregiver as you to make sure they get well.
I do hope you find the way to report this breeder for her abusive lack of care and concern.