I would not let that harpy fill my children's heads with her twisted version of the truth
I would want to be there if only to hear what she was saying
you don't need to start correcting everything right there but I would make sure to correct it later when you have the kids alone
like: mommy said we both wanted to sleep with other people but I want you to know that mommy is the only slut here...
ok, maybe not like that but
I think it is invaluable for you to know exactly what she is saying to your children
you don't have to tell the brutal, no holds barred truth...nor should you (they are just little tots) but you should be able to addess any nuttiness she splatters on them