They had no sexual relations? Except for making out with tops off? At best, she is emotionally cheating, at worst, she's on the verge of all the way cheating. Regardless, what she is doing is not right. I am sure if we asked her BF what he thought about her behavior, he would be crushed. I'm not sure why you are so quick to go to bat for this woman, when it's the OP who came here for advice. The best advice we can give him is to focus his energy on himself. He doesn't want her to cheat on her boyfriend with him, even though he has feelings for her. That makes the OP a good guy.
I think your logic about cheating being worse when you're married with 3 kids, as opposed to cheating on someone you're in an exclusive relationship with is asinine. Seriously stupid logic right there. Cheating is black and white. Cheating is cheating. If this woman's relationship with her boyfriend was so bad, she would end it. I'm not buying that she is "too weak" to end the relationship, that's a bullshit cop out. She should grow the f*ck up and make up her mind about what she wants, like any other rational adult would do.
"Caring is not an advantage."