After what my MIL said, I'm wondering if W trying to get full custody of the kids is some desperate act to push me out of her life so she can avoid the real consequences of her actions. She now sees that I'm moving on and that she has no control over me anymore. She now sees a future where we have to share the kids and she will have to live with them having new experiences, meeting new people, and living half their lives outside of her view. This is causing her unbearable anxiety, and the only solution is to get complete control of them. The fact that it would hurt me horribly is meaningless to her. This is all my fault anyway, so I deserve it.
Had a meeting with my atty this afternoon. He said it's extremely unlikely this will go to trial, and that the court will likely maintain the verbal agreement we've been living under for over a year. I'm still worried, but less so. If she was going to go for full custody, pretty stupid of her to leave the kids with me for two and a half weeks right before filing!