You have every right to be hurt. Regardless of whether actual sex occurred, your wife was having an emotional affair. She is making excuses for her behavior. Sorry to be blunt, but it kind of sounds to me like she wants to keep both you and her ex in her life. She doesn't want to leave you and the kids, but she is making excuses not to end it with him. I'm sorry, but that is very selfish on her part. She doesn't seem to be considering your feelings.

I'm really sorry you're in this situation. Whatever happens, remember you have the right to have feelings about her lying and cheating.