Well of couse you are the fall back guy. Of course she is going to say had thought about working on the R the past couple of weeks, and doing what's best for the kids......yada, yada. Of course you are being used! Don't fool yourself into thinking this pregnancy has fixed the problem.
To be blunt, you need to spend time alone....away from her. Tell her you have a lot to think about. Then figure out how you really feel (without her emotional pressure) about raising the "love child" of the man your W had an A with. A man who dumped her........she didn't didn't dump him. She was choosing him over you. Every time you look at that child, will you be reminded that he/she is the product of your W's unfaithfulness? And you know this child will forever link you, W, and OM together. Even if OM doesn't want W and child right now, it is likely to change once the child is born.
The baby can't help the circumstances, of course. You may even be able to love him/her. But the part I hope you will consider right now is how this will affect the rest your life......not to mention the R between you and W, and that is why you need time away from her. It won't hurt her to wait to see how "you" feel for a change.
Another thing you need to consider is the fact she was not repentant of her wrong doing. She just got caught...and got dumped. (And are you still financially supporting her?) what you need to ask yourself is she truly sorry? She said early on she was sorry for your pain, or something to that effect, but did not say she was sorry for her actions. I think a very big mistake LBH'S make is taking the wayward W back without her feeling remorseful over her actions, and/or trying to get there at least. Many women really don't want to deal with what they did, and will more or less tell the H to put it in the past and just move forward in the M, and then harbor all those old resentments toward her H. Of course, he's left not knowing how to deal with her A or the SSM he faces.
So I suggest you take plenty of time, and don't allow her or her family to rush you to take her back. This is about what you want for your life now. If you decide you want to give it a chance, you must lay out the conditions at the time you give her your answer. One of the most important being to find a solution based family therapist to help salvage this M. Please do not take her back without a firm commitment from her about this. Then follow through immediately. Do not accept excuses of waiting till after the child is born, or any other stuff.
Another condition should be her taking a STD test. You deserve to be safe and don't take chances.
I would seriously....SERIOUSLY consider relocating where my family lived. It is one thing raising another man's child, but you don't have to live next door to him or the child's paternal grandparents. That is much worse than living next door to a MIL. Distance does help!
These are just a few suggestions. I believe you need to write other things down as you have time to think alone. Know your boundaries and make certain she knows them, before you agree to anything.
Nobody can tell you what decision to make for your own life. Be careful, go slowly, and don't be too quick to believe what she tells you.
It is not about what you feel should work in your M. It is about doing the work that gets the right results. Do what works!