I am not at the same spot I was a year ago. Partly because of the help I got on this forum, partly because of other sources of info/wisdom, and partly simply by the virtue of doing the job and getting more experience, I know what to do, and I'm doing it. Things are moving. Since the beginning of the year, I am in constant contact with Big Boss, and semi-constant with our HR representative, just because things are coming to a head. So far, both our problem employees have reached the written warning level on the verbal/written/final/dismissal ladder, and based on the bizarre meeting I had with one of them Friday, he's either going to get a final warning, or get fired. He already has a lawyer, so he's aware of where this is going. The other one barely escaped a final warning due to a glitch in our IT services, long story, but he's on notice. He later f-ed up something technically, and that may result in the final warning anyway. We're waiting for the results of the investigation. So, things are moving, albeit slowly.
The "embrace your power" part of the question came from the moment where I realized that I have to put some reinforcement around my spine, and take things through their logical conclusion. However, as a lot of you have noted, it is importanta to not let it get to your head, and to know where the limits are and respect them. To me, finding out just how much reinforcement is needed was a bit of a personal journey as much as a professional one, and I wanted to hear other's stories.
The "moral dilemma" part of the question comes from the fact that part of me will derive joy from seeing our (bigger) problem guy go. The guy is in his late fifties, has a disabled wife at home, and when fired, will have bad reviews - it's just really bad for him. He is the one who should have worried about that, but it's still painful for me to inflict injury to another. And yet, I will celebrate when he's gone. Hence, moral confusion, and I wanted to hear others' stories.