Is she cheating on you? How long have you been married? Why does she feel it wouldn't work? What are the problems in the marriage?
I'm with you on having some doubts, especially if you haven't been married long. If this was really sudden and there weren't a lot of problems, I'd suspect she's cheating, and separation certainly gives her the space for that.
Instead of making any decisions about the marriage, how about you try out this newfound single life for a bit. Put yourself in the mindset of a divorced man...it might make it easier to do what you need to do to become happy with just you again. Go out with friends. Do things you've always wanted to try.
As far as dating her...as long as she's spouting "just as friends", I'd limit those and let her drive any get togethers. I wouldn't ask her out. If she asks you to do something, even though you want to, I'd suggest at least half of the time saying, "sorry, I can't, I already have plans." It would be best to actually keep yourself so busy that you do have plans, but I'd turn her down even if you don't, and then make plans. Get out of town for a weekend. You need to get to the point where you can make an informed decision about what she brings to the table. If she's walking already (or cheating), you want to go into any continued relationship with her with open eyes. The happy news about all this is that you don't have kids with her.
You cannot be lonely if you like the person you're alone with. Dr. Wayne Dyer