It is a bit odd, especially the fact he is married and doesn't sleep with his wife when the kids are there. Also for an older man to me sleeping with a 10 and 7 year old is a bit creepy to me. I unfortunately grew up around sexual abuse, to my knowledge I wasn't abused, but my siblings, cousins, aunts etc..were either by my grand father or my uncle.
I am sorry your wife had to feel that repulsion because of having that happen to her. My only thought, was he at all drunk, because that would be the only way I would excuse the behavior. Because when you are drunk things do happen but if not. I would want to press the issue a bit, especially the issue with the children.
I hope that you all can resolve this without hurt feelings. As a man I feel uncomfortable giving my 4 year old a bath or helping her get dressed. I don't even usually have her sleep with me unless we are at a hotel and there isn't an option. Hope I helped a little.