Considering the situation I think that you did the right thing. For her she may see you as someone that is a positive male role model in her sons life. She may also like you as a friend and wants to be sleep with you but is not ready for a relationship. With that being said, I do feel like you did the right thing in regards XXXXX XXXXX being the fall back guy.
I agree with everything that you said in regards XXXXX XXXXX wanting to mislead her child, because having you around doing activities with him caring on like it is a "family" and that is not what she wants, can cause confusion with the child, especially at his age. the only thing you can do is tell her how you feel and ask her if she would like to move toward someone more than friendship or just remain friends. If she says friends and you know that you cannot be around her in that way, then it is just best to stay away.