I honestly have no idea where she stands.
Sorry, I'm late to the party.
You know EXACTLY where she stands: She wants the attention of the other man, AND you. She's told you in no uncertain terms, both in words and deeds, that she isn't going to stop with OM.
So that gives you two choices for YOU to do(and only two): Accept the OM in your life, or divorce.
What you have been doing is called the "pick-me dance," aka trying to "nice" your WW back. Neither work. EVER. As others have said, she's in the land of unicorns and rainbows. The only way to get her out of that is by shock and awe tactics.
See what happened when she threatened you and you called her on it? Told her you'd pack for her? She backed down ASAP. She wants the comfort of the home you have, the support you provide ($, dinner, babysitting, etc.) and the facade of being one big happy family. She backed down when you started to show her reality - want to leave? OK. There's the door. Suddenly reality is crashing in on unicorn/rainbow land.
So what she does, is to placate you: Doesn't leave, wants to go to MC to see "if we can work it out," gives you ambiguous answers about staying marriage. You need to start listening to her words, not her actions.
What does "in house separation" mean in your case? Have you moved her out of the bedroom? Have you drafted up a child custody schedule? Have you laid out who is responsible for what bills? Is there a formal (signed and notarized) agreement in place?
If not, nothing has changed, regardless of what you think. To her, it's the same 'ol, same 'ol.
Me: BH (50); exW (49): Way too many guys to count. Three kids (D, D, S, all >20)Together 25 years, married 18; Divorced (July 2015)
I divorced a narc. Separate everything. NC as much as humanly possible and absolutely no phone calls. - Ch