If you ARE willing to give her some separation space, and if you really do think there is some merit to it, call her bluff:
Agree to a trial separation (say, 3 months), with HER moving out, but ONLY if she agrees to send him a no-contact letter (the copy to be approved by you, and to be MAILED by you), and FULL TRANSPARENCY (new cellphone #, detailed billing coming to you, keylogger on her computer, exchange daily schedules, etc.). Explain that you understand that she feels she needs some time and space, and that surely she can't do that with her husband underfoot OR the other man in contact. She needs to figure out what's best for HER, unencumbered, and that this would be the healthiest way to do that.
The downside, as I mentioned earlier, is that since you wouldn't be together every day, you would have far less opportunities to show her the "new VancouverDad" and display your new changes, which --hopefully you're making.
I really think it's all academic, though, because unless I'm reading this wrong, there's no way in hell she'll agree to it. I think she's still lying to you (about "ending it" -- I do think she's feeling bad about what she's done), and isn't quite yet ready to end it. But you never know.
