Your wife is simply indulging in the "one that got away" fantasy. It is ok to have this fantasy as long as she understands that it is one. As long as she understands that since she isn't sure if she can help herself if she were alone with him - well, she can't be alone with him.
It is admirable that you aren't over reactive about something that isn't anything - YET. It is admirable that you didn't do some one upmanship in the form of "Yeah, well I feel the same way about your sister/best friend/kid's teacher or whatever." At the same time Eddie this is a TEST. Part of this is her seeing if you care, seeing if you will fall apart, seeing if you will act to protect your family without over reacting and acting like an azz. What is stopping you from using her admission as a way to become more intimate with her to expose yourself and get her to expose herself. If you did that this OG wouldn't have a chance. Find out what she likes about him. Find out what he brings out in her that makes her feel special.
Blackfoot wrote a great deal about women testing men and how you react will be very important in how your marriage fares. You might review some of his old posts.
