Just to clarify, I did confront my wife immediately after discovering her A, I just didn't reveal it to anyone else (my mistake was not telling the OM wife at the time). In your case, you're right- not much tying him to anyone, but I would still let his XW know when the time comes.
Here's how I see it. This guy is a piece of cr@p, and you are the better choice, hands down. From his history, as you describe it, he moves from one woman to another. He'll move on from your wife as well (or she from him). I seriously doubt that if your W moved in with him that it would last long.
Your wife is already having a full blown PA with him, so if she did say "I'm outta here" to you, it wouldn't make much difference other than she'd move out. I think that if she did that, their relationship would deteriorate very rapidly. I think that you wife knows this, deep down, and that's why she hasn't already pulled the trigger on D.
That being said, I'd tell her that you know about her affair. I would let her know that you also knew of her previous affair. In a firm but loving way, I would tell her that while you want a better marriage with her than you have had in the past, that you cannot tolerate her continued infidelity. I would admit that you have not been the best husband to her, nor the best father, but that you have made a commitment to yourself to become a better man for yourself and your family. I would invite her to work on your marriage together (we can define this later if you wish), with no further contact with OM of any kind.
She may respond with agreement to work on your marriage. If so- great! It will still be a long road. If she decides to move in with the OM, I honestly think it won't last six months before she's back asking to work on your M. The OM will be frustrated because he'll have to share your W's time with your kids and her new job. All of the fantasy will blow up. He won't be able to hide his true personality from your W for long. It won't work. Right now they only get the best from each other, they'll get it ALL if they move in together.
You should leave her with the best possible image of you -strong, in control, loving, kind. If she moves out, you do not speak with her. This is designed to protect you from further hurt, as well as to leave your wife with only her last memories of you, and without your continued emotional support. You have to force the other guy to meet ALL her needs, not just the ones you are not providing.
I think the plan above will lead to the best and fastest path to recovery. Once she comes knocking back on your door? Well, that's a whole different post! -HS
