Hi Tony, sorry to hear about your situation, but it sounds to me like your wife wanted to believe this & is using it as perfect excuse for some other underlying problem. What that may be I obviously don't know. Has this "friend" caused trouble in the past or the lonely/jealous type & has done this so she can have your wife all to herself?
You need to talk to your wife alone with no other parties present, in a neutral place and ask her what she wants out of your relationship, her life and most importantly where her feelings are at and when all this truly began, because it seems to me, as said, she's just used her mate as a scape goat. Also this goes without saying but when she talks 'listen' (as a women myself, you rant & rave, I go on the defensive) & try not to bring the 'boobs out episode' any more than necessary, also try not to slag her mate off as this will just be used as ammunition. I really hope this ends in the way you want as it seems like you love her a lot.