Heroshima -- man I feel your pain, and even the name of your title here makes me think that you are awaiting "the bombs to drop".
Look being a father and nurturing a living thing is touchy business. It is hard to somehow give love, while also not being viewed as a "wuss", because love and care takes a certain sensitivity, and some women seem to be disgusted by this, as they gain mental imagery of "limp members" and long soap operas. But I understand your desire to be loving and caring towards your children and to try and do what you must to keep your wife happy (which for some men can be an impossible thing).
I would not say that your relationship is entirely over. If she has not cheated that is. If she has cheated, than that is something for you to decide, but usually, this will be a recipe for to undermine your own self-respect in the long run. Hey, you were able to keep it in your pants but she was not able to keep someone else out of hers. Weakness. (but again, do not jump to conclusions).
I would say start doing something that shows an extreme change in your behavior. Start working out everyday after work. Buy new clothes that complement you. Buy a ticket to some event that means something to you. Find a guy buddy to go start hanging out with. Take your kids on an adventure while she is out with the "guitar man".
Truly, it sounds like you have a good head on your shoulders and are aware of the situation. I do not think you have to fold your cards immediately, if you can re-inspire lust and attraction in her. I am not saying this is going to be an easy or straightforward thing to do.
My questions to you: (1) have you both kept your health up in these seventeen years? (2) does she work for a living or are you supporting her and her new music career, (3) have you met the guitarist guy and tried to befriend him? This may be too late now, as she already knows you "disapprove" of their friendship, but best thing might be to do is take him in and make him admire you somehow, become his friend, make him look up to you...just ideas...
There are some jaded views on this website with women and relationship, so be forewarned, some guys are telling you to secure your $$ now -- make your moves carefully as even certain lines of thoughts can bring things to a life of their own...
Women traditionally seem to get the upperhand in 'divorce' related legal decisions...keep that in mind. Protect what you've worked for (especially if she's been living off of you).
*note* which is amazing to me how some women seem to have so little remorse or feelings of accountability when mooching off a man for X #years and then raping his bank account and going for custody...if any male did this to another male there would be a straight up brawl...testosterone and anger and suddenly a clenching of fists...which towards a women would then also be domestic violence (I'm not advocating hitting anyone, but it is amazing that a woman can put a man through such a mental mind rape and still tell herself she's a victim as she's pouring out her grievances to her chicken-headed friends) -- perhaps I've become slightly jaded I am unsure.
Take control of your life man. It's the only way.
/edit -- it sounds like you are more "on top of your ****" than she is, and she's ****ing you around and living in a fantasy land. If she was to leave you for guitar man I imagine she imagines a successful music career, never mind the family she has been trying to start...she wants to leave off on her mental imagery bird...problem is the wings are fragile and it won't be long until she finds some issues with this guy (if she was to get with him)...the more and more I think about it man, this woman sounds conniving.