Wow SC I am sorry you are feeling so low, but I understand it. How many times have I wondered if H still looks at me and comares me to OW, if he compares our whole relationship to what 'might have been'.
Of course we need to remind ourselves, there is a reason that the affair ended. In your case it sounds like your husband found out she was a lying, cheating, manipulative skank. Didn't he say something to that effect?
I know it doesn't help, but I don't really think he loves her. He loves his idealized version of her, his selective memory of her. Like you said, you are competing with a fantasy, pure and simple. The disadvantage to that is, she is a fantasy . So he can remember things however he wants, or imagine that she was better than she was. And be totally unrealistic...
The benefit is, she is a fantasy. Because she isn't there. And you are. He said he just wants things to be happy with you on a daily basis.(You said: He says he just wants to happy and have every day happy but understands why that's hard for me to pretend to do.)
So if you decide you do want to keep moving forward with your marriage, maybe that is something you could work on? Being happy, upbeat, fun in his presence. I know I am asking the impossible when you say you are depressed and facing surgery...
My theory is, if you are unhappy, jealous, depressed, and H knows it; then when he is around you he is feeling this sadness and emptiness. Then you say he has his pretend image of ow. I am sure it is not an image of sadness/guilt/emptiness. He prob. feels guilty seeing you in pain because he knows he caused your pain with his choices. If memory serves he has said as much, he gets angry at himself for how he hurt you.
I care about you, I am not trying to hurt you more or question your feelings. But I am applying some of what I know from what I have read in books and from my own life. If the time he spends with you leaves him feeling guilty and inadequate, and angry at himself, that is not going to be time he enjoys. Add that to unrealistic images of fantasygirl, and it sucks.
However if you can find a way to boost your own confidence (and remember he CHOSE you! He is WITH you and says he LOVES you and WANTS you. ), that would be so great. Imagine he spends time with you and you DO laugh, have fun, relax with each other. As things improve with your relationship over time, he won't need a fantasy relationship to think about. He will have a REAL, fun relationship to think about.
I mention this b/c my DB coach said that for a lot of these guys, there is a feeling that we are scrutinizing them every minute we are together. Because they have hurt us and we are looking for signs that they are "making it up to us" or even signs that they might "do it again". If they feel tense and judged all the time, they may decide "time with wife = tension". If the goal is to keep your marriage and make it a better one, there needs to be a way to reduce the tension and increase the 'fun'.
Again I know i have rambled on and on but I am fresh from my first DB coach call and re-visiting my own approach to things...
Good luck with your surgery, I hope all goes well. I have been looking for you around here, glad you are back.