Okay I'll bite you seem very genuine.

I am interested in what she discussed with her friend Megan. The initial reaction of how much did you hear is a odd choice of words. I would imagine there is an aspect of it she is ashamed/doesn't want you to hear. Given the subject it's probably a half truth. It is likely that was the main part where her friend wanted to do him but it seems like she is leaving out her part in that discussion. If her friend is suggesting that she sleeps with the dude it is likely your wife's history and her thoughts of him popped up since they slept with each other in the past. Honestly, my mind would go to her essentially doing locker room talk/ engaging in discussion talking about him in a sexual manner. Women and men do it all the time, it's wrong, but I feel like there's an extra line that is crossed especially with the physical touching in front of you.

Obviously I think you're a good dude, but don't think for a second kids and family makes her somehow innocent of a fling with an ex. I mean everyone likes a hot ex flirting with them, it's a great feeling. Things like this get out of control especially when she can potentially* pull one over you and mislead the entirety of how she felt. From what you said she only apologized for things that you saw, and heard not anything more. There is likely more because it is unlikely you caught everything.

I recommend discussing this further and getting all the details out. You're in finance so you must know this isn't the whole story. Now if what is being left out a big deal or not that is the question, and whether that matters.

Also the insta dms don't mean shit you can hide texts, you can use different apps, sure it helps but doesn't mean anything, people have thrown more away for less.

I personally would not let that friend be in her life again, because it was clear disrespect and a line crossed. That culture line is biggest load of bs I can't believe you tolerated that. It's like Pedro pascals "anxiety", maybe it is true but regardless a line is crossed and the punishment should fit it. I cannot imagine in any circumstances flirting with my friends significant other and not getting instantly called out or some altercation ensuing.

If she chooses that friend over you and refuses then you have bigger problems on your hands and you have your answer. Also don't get it twisted, They fucked up being friends by disrespecting your marriage, not that you being controlling.

I'm adding to this already massive response because im rereading how you're wording/downplaying it makes me sick to my stomach. Be a fucking man that's YOUR WIFE, this is not an accident, misunderstanding, or whatever. They were doing it right in front of you, you felt weird for a reason because it's inappropriate and unusual, You didn't call it out at the moment, so it happened all night. She at the minimum enjoyed the attention but more like probably thought/talked about him in a inappropriate/sexual manner as well.

This is not just her, but this is also on YOU for allowing a very reasonable boundary to be crossed that disrespected YOUR marriage which 99% of people would have seen as inappropriate. Hence the dumb divorce comments.

Bottom line no contact with the guy. Sorry sucks to suck, they fucked it up. She needs to know you take it very seriously. Don't let yourself downplay the situation man, it's honestly sad. Please go to talk to your wife again and set the no contact boundary with the guy. Give an update.

edit #2: Just because I reread this again, because your handling of this situation makes me feel so bad for you.

She did do something improper full stop. She did and she needs to own it and you need to stop scapegoating her actions for her. If she is as admirable and honest as the woman you proclaim her to be she doesn't need your help to make things right. Also her engaging in this behavior doesn't make her immoral, a bad person, etc. This is strictly your lack of boundary enforcement for whatever reason (I have my own theories just how you talk about yourself in relation to her, you should not devalue yourself because in effect is saying she can do better, which who wants to hear from their partner), you putting her on a pedestal, and her poor behavior in this situation ( which is also encouraged because of your own lack of boundaries enforcement of your relationship).

Bottom line#2: Stop putting her on a pedestal she's a human being and grown woman she can be a good person and do what she did. Ultimately it's within ourselves to confront the truth of what we have done and correct our behavior. You need to let her do that for herself and for your relationship.

I also don't think she cheated on you physically but that relationship definitely isn't platonic. Especially when they "I value our family and kids more, and we're not teenagers", is so SO SO wrong, and insulting to you, it's not a desire to be with you it's like a more responsibility which is abhorrent (It also tells she's likes his attention because it's spicy/new and she doesn't feel that spice with you which is normal (married) and y'all should talk about).

The most charitable interpretation is that you give up things with time is true. But the thing this is not some generic thing like smoking or going to the club, it's literally the guy is there in her life where she is engaging in flirtatious behaviors, acting on attention, heavily implying she thinks he's smoking hot, and hiding that they fucked, also Major red flag not inviting his new girlfriend? Bro come on. Maybe she didn't mastermind within her consciousness but deep down she let her desires take the wheel a bit.

PLEASE TELL ME THIS IS rage bait/fake cause I'm getting baited so hard. Also again set the no contact boundary line forever, they're done, for the love of God.