50guy- I think you did a kind thing for your DW to phase out this friendship.
I also think... and maybe ChipmunkGal will agree....it means a lot to us girls what other people think of our relationship. If there is gossip and even if the gal-pal thinks she's got your interest peaked....that's a huge insult to us girls. If other people thought my guy had interests elsewhere....even if I believed that it was platonic...it looks bad. If a guy is willing to say "DW, you are more important to me than this friendship" ...that is huge!!
At the same time, we all have to be mature enough to realize friends are not necessarily friends with benefits.