I have just recently started to get help for the same problem that your wife has. In my case, (which sounds identical to your wife) I was diagnosed with dilusional disorder. I have the most wonderful boyfriend, who I know would never cheat on me, but I am terrified when he even looks in the direction of another woman. I get this knot in my stomach and feel like the ugliest person in the world. Here is an example of my behavior: We will be watching TV and an attractive female will come on. I will say something like "so I guess we're watching this so you can show me what you'd like me to look like?" and "well if I had that kind of money, I could look like that too." He'd say, "I don't know what you're talking about, you're prettier than her". I reply "That's right, that's why she's on TV, because she's so ugly right? Maybe you should write her a letter to tell her she should get a nice little roll around her waist and get rid of her implants so she'll be pretty like me."
That's a tame example of my typical reaction. I constantly tell my boyfriend what he thinks and how he thinks it. It has gotten to the point where we can't do anything together.
He told me once that I don't want a boyfriend, I want someone who I can put in a box and take out when I want, and he can do nothing untill I take him out of that box. And you know what? He's right. It's much more than insecurity and low self esteem. It's an actual clinical disorder like depression. It will only get worse without treatment. I am currently in therapy, and on medication. In every other way I am a normal productive member of society, as I'm sure your wife is. It took me a long time to realize that this is more than just my way of dealing with previous bad relationships. That was how I justified my behaviour. As I'm saying the things I say to my boyfriend, I wish I could stop, but I just can't, it's not something I have control over. I just can't stop myself. There is help out there, and I hope the two of you can find it. It's a long road, like I said I just started to get help, but my therapists assure me that I'm "curable". It's clinical name is dilusional disorder - spousal jealousy - morbid jealousy.
Good luck, and don't give up on her yet, not as long as she wants to get help. It's out there.