Mel B Denies Ex Stephen Belafonte's Claims of Addiction, Agrees to Drug Testing

4:00 PM PT -- Mel B says she is not a "raging alcoholic," though she does drink socially. She also denies she takes "illicit drugs," and says she's not a sex addict ... these are her responses to Belafonte's request for sole legal and physical custody.

Mel B claims Russell Updegraff's declaration in which he makes these claims has no credibility, because she says he's an ex employee who has an ax to grind, and he and Belafonte are hell bent in dragging her through the mud and ruining her reputation out of spite.

She says she is willing to submit to random drug testing for a limited period of time to prove she's a fit parent, and wants Stephen to do the same.

And, in her legal docs Mel B repeats her claim that Belafonte has abused her so badly she's suffering from PTSD.

Mel also agrees to submit to a child custody evaluation with psychological testing, because she strongly opposes Stephen getting full custody. She also states the following -- she's not a "sex addict" who brings home random men, she is not a raging alcoholic as Stephen paints her to be, she does not take illicit drugs ... and her children's well-being is her top priority

There's more ... Anthony Santa Maria -- Mel B's housekeeper and childcare services provider -- vouches for Mel in the docs, claiming he's never witnessed her drunk "or even buzzed," and he's never seen her do anything remotely dangerous or neglectful with her kids.

Short story ... Mel B says Belafonte is angry, hungry for media attention and he has waged a vicious campaign to destroy her so he can stay in the spotlight.

10:15 AM PT -- We've learned Mel B and Stephen reached a settlement in the judge's chambers. The details are confidential. On her way out of court, we asked Mel if she was going to rehab ... but she was mum.

Stephen Belafonte says Mel B isn't fit to retain custody of her children, because she's in the grip of an alcohol-fueled spiral ... so claims ex-husband Belafonte.

Belafonte appeared in court Friday, armed with documentation from people who have been close to Mel B. She showed up as well, covered in sweat.

One of the declarations Belafonte submitted is from Russell Updegraff, who said in legal docs he's been responsible for watching her 2 kids, Madison and Angel, who he says are at serious risk because of a profound drinking problem on Mel B's part.

Updegraff claims Mel B drinks daily ... often starting as early as 10 AM. He says the day begins with beer, and then turns to wine and eventually hard liquor ... including vodka, tequila and gin. He says Mel B typically passes out, awakes and then becomes mean and belligerent.

Updegraff says the drinking problem is so bad, she's asked him to go to the store and get 12 bottles of wine, 2 bottles of vodka and one to two 12-packs of beer ... which she consumes in 4 to 5 days.

According to Updegraff's declaration, Madison, who turns 7 Saturday, and 11-year-old Angel are scared and stressed. He claims Mel B was sometimes physically abusive to Angel, digging her nails into her, grabbing her and shaking her.

Updegraff also says Mel B has been a cocaine user, although the docs suggest the real issue now is alcohol.

And, Updegraff says Mel B often brings various men home, with the kids present. In one case, he says a strange man tried to bring Madison into the shower, and he had to intervene and stop him.

He also says Mel B would regularly leave town for 1 to 2 weeks at a time and never check in to see how the kids were doing.

The hearing will be held this morning. We will update when the judge rules.

Belafonte wants temporary custody of kids so Mel B can go to rehab and get clean. He does not want to take the kids away from her, but fears they are at extreme risk given Mel B's state.