Dealing with an ongoing affair

[woundedfool]

The question is: should I tell her that the kids know; that his whole family knows? Or should I just shut up and let it unfold by itself?

Me, no... I would not be the one to spill. Since they already know, let her slip on her own (and potentially get "caught" in a lie).

I know there are other possible explanations of where she might have been - other friends where she could be staying the night. Still it drives me crazy.

There may be a million explanations, but none of them will change where you are, or where you are headed. That is why snooping/stumbling upon things will only drive you crazy.

So you are best to just simply detach. Its tough (I know, but just keep working at it).