Hi there! My name is XXXXX XXXXX X am a licensed psychotherapist. I hope to be of some assistance with your question. I am sorry that you are stuck in the middle of such a complicated situation, and can totally understand your feelings of frustration and sadness.
It seems a bit like an imbalance of power in regards XXXXX XXXXX son's relationship. He was clearly attracted to something about her; maybe it was a maternal feeling, maybe it was security and a feeling of being safe under her direction, maybe he has stretched his own personal relationship/sexual boundaries due to the fact that he was exposed to your own open-minded and fluid expressions of your own. Whatever it is, it is. Now you are left to cope with your own feelings. And this is the issue.
Our job as parents is simply to give our kids roots, and give them wings. We have visions for our kids, but inevitably, it is their life to live. I see the relationship as you do; I feel there is probably an unhealthy aspect to it due to the fact that he is so young, inexperienced, and vulnerable in a way. However, he is over 18 and free to make his choices. You have your own simple choice to make now; will you disconnect from him based on your discomfort with this relationship? Or will you continue to love him and stay connected despite it? You never have to accept it. You never have to condone it. However, your relationship with your son is what is at stake. You can tell him that you love him unconditionally but don't condone the relationship, and that you have serious concerns about the choice he is making. And then, leave it at that. Some lessons cannot be taught through talk---- they must be experienced through living. I say just be there and be ready to catch him once he falls, because generally speaking and in my opinion, someone of his age will most likely move on after a period of time. You can love your son and let him know this... and in the meantime, just go on with life and know that this too shall pass.
I hope you find in my reply some food for thought, and I will work with you until you are satisfied that you have gotten what you needed from the answer. I wish you all the best and know that time will work it's magic on this one... just hang in there and treat yourself kindly and with care until it does!