She recognizes this and says she "cant give me reassurances" and that she is "suffocating and needs space".
That's pretty typical. She won't believe your changes at first, she needs to see them over a long period of time before she believes they are real and not just tricks to get her back.
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I was mostly keeping it cool for a couple of months, but in March I had a bad few days, fell apart with anxiety and insecurity, and we ended up sleeping in separate rooms for a couple of weeks after she demanded space.
You're back in the MBR now? STAY THERE. Next time she asks for space remind her that you are doing nothing to stop her from taking all the space she wants. She can sleep on the floor, in another room, in the closet, the bathtub or in the backyard. Not your concern. YOU STAY THERE. This is part of reestablishing your manhood after having much of it stripped away after BD.
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Following this, we had a false start at MC when the counselor gave up in the second week. We had enrolled in individual counseling at the same time. I tried to find a new MC but it was met with resistance because she wanted to continue individual sessions for a while first.
Stick with IC. Discontinue MC. Most WAS's do it to check off their list of "things I tried to save the M but only proved it was already over".
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In the background, I'm 95% sure there is an EA with a coworker that probably got hot in December. When asked, this was denied and blame shifting seems to occur. I don't want to snoop and be consumed with it, but any space I create, he is just going to fill.
No, he is going to fill all the space no matter what you do. You've been fired as H, you are no longer her go-to for emotional support. Don't fall into the trap of trying to prove yourself better than OM, because that will just look sad, needy and desperate to her. Your attitude should be "I am too good for this lying cheater, I will work on myself and leave her to the mess she is making unless and until she fully repents of it".
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How do I balance "I want to work on it" and some affection and normalcy before I started to withdraw myself with the now very cold feeling now that I'm withdrawing?
You don't work on "it" you work on YOU. And affection is definitely off the menu for now, and probably for months. As far as withdrawing, I don't think you understand the concept of detachment. It's not withdrawing, it's to stop pursuing. Read the book.
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Also, I have not yet read DR, since we share a bank account I need to find a way to get my hands on it.
Go to the bookstore and pay cash. You need it. This forum is to help you with the concepts in Michele's books, but it is not a replacement for the books and for DB coaching.
