I've not read your whole sitch, but I've read up on this post, and I wanted to share a little of how I handled things in my sitch.
My H has been having a EA/PA for at least a year with OW from work. I knew about, and I asked about it, and he denied it, and I found another TM, and I asked about it, and he denied it, and so on and so on and so on. He moved out the 1st of August, and I got a call from a mutual friend who confirmed my suspicions...but, I knew without that confirmation. Just like you know without the pictures!
So, I went to his office. I asked to talk to him outside, and I said, "I'm thinking of seeing the attorney, and the tone of that meeting will be set by the convo. we have right now. I know you are a having PA with OW, and you can continue to lie about it and the meeting with the attorney can go badly for you or you can fess up, and we can try to get through this civilly."
Well, he fessed up. He was so sure I knew that he couldn't continue to lie. He thought I'd hired a PI, and he even asked what proof I had. My response, "It doesn't matter...we can suffice it to say that I have enough proof to know that it's been going on for some time, that it's physical, and that you've been lying."
To this day (six weeks later) he still doesn't know I didn't hire the PI. And, by the way, I've still not filed for D. I did consult the attorney, but that's all I've done, and all I intend to do for now. I have children with this man, and we had what I thought was a good marriage. It's a lot to walk away from, and, at this point I'm just going to give it some more time. I've picked a date at which point I will reevaluate whether I should proceed with the D or continue to wait it out (working on me and praying he'll come around). That helps some...to have a future date identified. It takes the day to day pressure off the decision away. You don't have to think about it daily because you don't have to decide until said date.
At any rate, if you can bluff well, you can claim to have evidence that you don't for the confrontation. If you are calm and confident about it and tell her you know already rather than asking her about it, you might be able to get her to confess. Then, once it's out in the open, you can decide how you will deal with it. And, she'll have to deal differently as well...she can't just continue to try to hide it from you.
I think the pulling back from her is a good idea. Especially once she knows that you know. I've not done that well (actually, I didn't do it at all for the first few weeks), and my H has been "cake eating." I'm starting to pull back some now...it's been hard, but I think it's the only way he'll know that he can't continue to have what he has with me (the friendship, the "family," the support) and have what he has with her (whatever that is!). He can't continue to disrespect me that way.
I'll be watching your thread for updates! I wish you the very best. The kids are worth a little extra pain...isn't that what parenting is all about...taking the extra pain in an effort to protect them from worse???
Best wishes! Amy
Me 39 H 36 S 7 S 4 T 15 M 12 H out 8/1/08 OW confirmed 8/6/08 D final on 6/12/09...I'm doing good!