It doesn't sound like she's conflicted at all. She is going around with him and your kids as if they were a happy family. If she was conflicted, she'd be going out with him alone.
Personally I would have that talk with her about your kids. I mean, do you want them to be raised with that kind of idea that it's okay to go out with Mommy's OM? Is that how you want them to be in their relationships?
This is about them. Not you.
Just my thoughts.
M-43 W-40 2D - 9 and 5
Emotion, yet peace. Ignorance, yet knowledge. Passion, yet serenity. Chaos, yet harmony. Death, yet a new life.