Not much you can do about an ongoing affair. There are two different takes on how to handle it. One is to ignore the affair and focus on why it occurred by correcting those behaviours in yourself that may not have been a positive on your relationship. The other take is to highlight the affair for everyone involved that may have an impact on it. This site focuses more on the first but there have been a few, like chocolateyes, who have had some success with the latter.
The most important thing is that you need to separate your feelings (marriage) from your legal needs (divorce/separation). Seek counsel. Protecting yourself is a natural aspect of where you are at and may bring a smidgen of reality to your wife. Right now it seems like she's getting everything she wants with you out of the way so perhaps a little reality is necessary, especially monetary reality. I hope some of the experts can chime in here.
My personal suggestion is to protect yourself so that you are able to provide for your children independantly of your wife. She should face the consequences of her actions. Remember, that's my personal opinion, though.
