You cant worry about what other people think. They have their own problems.
Worry about protecting yourself and your kids.
Your WAW is sick right now. Hopefully some day she will choose to get better. You can help speed up the process by making REALITY hit faster by not enabling her behavior.
You do this by putting on your armor in order to slay the dragon.
Everytime she says anything raise your sheild to block the fire.
Get a lawyer asap. File a petition for divorce. Fight for custody of your kids. If after all this the OM and her are still wanting this and havn't caved then keep on fighting. Being nice and playing the victim will only make you more resentful and empower her more.
Stop the fantasy by standing up for your rights. I fought for mine and stuck my ground and got joint residency and custody. You should do the same. Protect the kids should be number one.