Despite his history, a hug does not "the moves" make on its own. Leave it alone. If he cheats again it'll be in a big way and she will find out, but it won't be your "fault."
Here's what I mean by that: if you tell her, and she gets rid of him, she'll be mad at you for "making" her push him (her kids' father) away. If they stay together, she'll still be mad at you for bringing it up and possibly "causing trouble."
In cases like this, it will somehow be your fault if you say anything at all, no matter what the outcome. Your kids and her kids play together, and if she gets angry at you they will suffer for it, needlessly because a hug doesn't prove anything anyway. Let it go.
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The existence of the leader who is wise
is barely known to those he leads.
He acts without unnecessary speech,
so that the people say,
'It happened of its own accord.' -Tao Te Ching, Verse 17