It sounds like you are afraid of your wife. What's the worst thing that will happen if you stand up to her? She'll leave? Guess what, she's talking about that anyway. Why not take control and lead? She is indulging her fantasy at your expense, and worse...at the expense of your kids. Time to man up.
Enroll your kids in the local public school (they can be very good, depending on where you live). Set the boundaries that Coach recommended. If she goes, she goes. You and the kids will cope, just like you would if she suddenly died. She needs to understand the reality of her choices. It sounds to me like you have shielded her from the day-to-day realities of life. As long as you continue to do that, she will continue to live in her fantasy world.
Best of luck,
Nut
Wisdom. ^
He's ignored it all so far; I hope he listens this time.