I agree with the Bigkahuna,
Your priority must be ending the affair. Let her move out, but you must expose this affair to family, friends, coworkers, OM's family, etc, etc. You need to do it all at once with no warning. The fallout from your wife will be tremendous. This is to be expected. She will tell you that you made things worse for the two of you and that now there will never be any chance of reconciliation. We've all heard this before. This is the standard reaction.
Exposure is the only thing you can do at this point to end the affair. If you still want your marriage, this is your next step. Now that she says she wants a sepparation, you my find the strength and courage to carry out the exposure. IMO, you are out of any other options. You have nothing to lose and everything to gain.
Her anger will not last long, maybe a few weeks. Durring that time she will say the meanest things to you and it will sound like she will never forgive you for doing this. Again, this is normal and should be expected. Once the affair dies, she will go through a withdrawl phase, and then finally she will start to see the way things really are.
This procedure has worked time and time again. It mat be the oposite of what your gut tells you to do, but so far your gut has not done anything to help save your marriage. Listen to the experience of people on this site. They have lived exactly what you are going through. We all like to think that our situations are different from the others. They are usually all the same... These steps work very well. If you want to save your marriage this is how to do it.