I'm sorry to be so late coming into this (not sure how I missed this the first time around). But you came in asking for women's points of views - and very few of us have responded to you!

I'll give you my bakground first; I'm the mom, my husband the step-dad. 2 children from a previous marriage (16 boy, 10 girl) and to add to it, my 16 yr old has Asperger's syndrom (a type of autism). Then my husband and I have a 5 yr old together. We just celebrated our 7 yr anniversary - and we actually dated for 2 yrs prior to getting married, mainly so we could see how the family dynamic would work.
So he has been in my older two kid's lives since they were 8 & 2. They are still very attached to their dad, even though he lives in a different state - but for my daughter, especially - hubby has been as much a daddy to her as real father.
I do not think you overreacted, of those parents didn't know there were boys spending the night - then they also didn't know what else was going on. A party my oldest son went to when he was 13, the parents WERE there to chaperone (it was just a party, not spen the night / so it was co-ed). But the parents didn't want to be too intrusive, so the party was in their basement and they stayed upstairs and would come downstaris to check on the kids every 20-30 minutes.
I thought that sounded perfectly reasonable. Then the parents caught a couple having oral sex out in their backyard! They noticed this couple was missing, so looked around - and there you go. They immediately called ALL parents, stopped the party, everybody went home.
This is a good couple, and responsible parents. They TRIED to be there, and it still blew up on them. So, no you didn't overreact - kids do different things these days.
And no matter what, your wife should support you.
My husband and I went through pre-marital counseling, and one of the biggest things we learned is that in a blended family - the spouses have to be united first. That is the firm foundation that holds the family strong. You will disagree, but never in front of the kids.
Almost every time I have disagreed with my husband over punishment or discipline of kids - it has been after they have gone to bed, or when they are in a different room. The few exceptions to that have been a few arguments concerning my oldest son and hubby. Like I said, my son has Asperger's - and so discipline has to be handled differently sometimes, things can escalate quickly if we try to push a point and he is in a "danger-zone" emotion area. He has to be given time to calm down before rational conversatio can occur. The 2 of them will occasionally get into a shouting match, and the gauge goes up and up, and I will step in to say: "OK we need to take a break from this, and come back".
In all fairness to my husband, he has had to do this one time with me and my son also (16 yr olds can push buttons!)
But I don't know how you can salvage a relationship all by yourself. It's called a "couple" for a reason. It takes both of you. I can understand that you are wanting to stay for the children. But, if they are in a complete united front against you, I'm not sure anything you can do will make a difference. They will always look to mom to say "OK" - over your head and behind your back.
I'm sorry. I think it really is time for the ultimatum - but you have to be ready to follow through when things don't change.