Wow. I am so sorry that you found yourself here. This is one of those head spinning stories that I say to myself "there are some sick mother fuckers out there". The thing about the children is insane, and the fact that this was ok for all of the adults involved leaves me speechless.
I wish you and your husband all the luck, and I feel for your children, your friend, and the other BH. The WS' involved need some serious counseling.