What would you suggest the line in the sand be?
In life, you have to decide what result you want, before you look at the means. As we say in the UK, she is clearly "bang out of order", but that does not mean you should whine at her - you have already expressed your discomfort.
If it were me, the result I would focus on would be a healthy happy marriage. If things seemed to get better and better despite her involvement with him, I would leave it be, but watch, and take notes. I would not spy, but I would not close my eyes either.
So my line in the sand would be her treatment of me - especially emotional and sexual. If this guy caused her to take from me, to give to him, I would put my foot down in 30 seconds.
However, behind all that I would have a master plan - I am very devious, (but in a good way
). I would be working on a plan to get rid of him, simply because he sounds like a jerk - pity his poor wife! Firstly, I would be working my butt of to try and find out where I had let her down - in either the present or the past - so that I could modify my behaviour to be a better husband. I would hit the gym, lose weight, and sharpen up my looks. Wearing black, and sporting designer stubble works well for me.
As a last resort, I would start getting socially acquainted with his wife. I warn you, this is a last resort. It could backfire real bad, real bad. But think about it. This man likes everything to go one way. If he were to find out you were on speaking terms with his wife - all innocent of course - he might decide to cool it with your wife, for fear of the truth coming out! Those pictures she sent him would play on his mind etc...
You could however, start doing your research right away. Find out about his relationship with his wife, but don't be obvious...YET.
If you are not capable of extreme subtly, forget about my last 3 paragraphs! But remember, focus on the result you want, in say 12 months time, not on the stupid little details. Be proactive! Imagine in your minds eye the kind of marriage you want, and start right away with your end of the bargain
- be the perfect husband. I am convinced you have neglected her in some way, so fix that right now.
One last thing... those rumours might be rubbish. People love to gossip. She is clearly flirting, but they may not have touched each other yet.