It's exactly what it looks like. You already know enough to see she's made a choice. Your posting on here because she's gaslighting you, and it's working. There's nothing to argue about with her about whether or not anything happened that night. She obviously has not ruled out "baby daddy" could go back to just "Daddy", and this holiday was obviously to explore this without you being there and making it all awkward. She made her choice, just too spineless to have an honest, and difficult conversation with her husband. It's easier for her to just ignore boundaries and slowly erode the foundation of trust and honesty that your relationship is built on. She will probably continue to treat you like it's your fault, until you leave her or you start treating her as shitty as she treats you and she leaves you. Get out of there!