It's absolutely worth the effort! Maybe you have a lousy relationship with both of your parents; that's less uncommon for men than it is for women. There are numerous comments I need to make about what you wrote, but I don't want to do much now, because I have a few hours before celebrating father's day with my wife & daughter when they both wake up (it's also our disabled-by-chronic-pain daughter's 25th birthday).
My wife turned her back on her family, FIRST, and got into Jungian analysis for almost 10 years after dumping her first husband, all before she met me; and I had turned my back on my family, though only my father was trying to keep his sons in obedient life paths, and my mother obediently died when I was 23. It takes a gutsy woman to do that, and mother-daughter bonds are like saltwatertoffee, so it will hurt a lot, and with her sister's jealousy too. Plus her autistic son. You're not buying yourself a cushy second marriage. But I didn't either. It may get harder and harder for you to get relationships to work out without greatly increasing your insights into yourself, not just to understand women, but see the blinders and fog in your own perspective.
My wife & I are both aware of each other's high discomfort about love-expressive stories involving former "great loves." And we've each endured a separate visit of the other with an "old flame" with considerable watchfulness. But my 1st and 2nd "great loves" (9yrs & 3.5 yrs) I Never see and rarely or never communicate with at all, esp #1 because there's a permanent record of that very good love life etched into my brain, so I don't even want to talk about it much, for fear of its effect either on my wife or on ME. My wife never sees her 1st great love either & never communicates. These are very persistent memory banks, with far too much influence on our present attitudes to be toyed with. [Your hostility towards your exwife shows quite a bit in the way you write, so it's clear that you've got persistent memories too, and they're affecting your attitudes toward Sherry.]
Now her demand about quitting the Dawn & Chris scene. FAIRNESS is not the fairest rule for love relations; LOVE is. That means wanting the other's happiness as much as your own, and seeking higher order resolutions to headbutting problems instead of WinLose options. What Sherry wants is for you to not just be impervious to Dawn's fawndling but aware of its effect on her, Sherry. Dawn might be oblivious to it too, or she might like doing it. You're actually safe to touch because you are taken. But Sherry's been through a lot of heartache, and since you love her you want her to be free of wounding from you wherever possible. So I suggest you let Sherry know that you will make sure Dawn doesn't touch you inappropriately, whether she is there or not, and if you get invited over, you will 1. invite Sherry if possible or 2. if not possible, ask Dawn (if it's her invitation) if Chris will be home, and either arrange to not arrive until Chris is home, or communicate very tactfully that it makes YOU uncomfortable to be at their place alone with her--a really good way to do that might be via email, so neither of you ever need to see&trigger each other's awkwardness (embarrassment) about dampening what neither of you may have realized could be an implicitly sexual tension between you. IT'S ACTUALLY PRETTY COMMON, tho not universal, FOR COUPLES TO NOT BE ABLE TO MAINTAIN CLOSE FRIENDS OF THE OPPOSITE SEX without a partner present one way or the other.
What's MORE important than HOW you show your intention to keep your behavior with Dawn from being secretive or too touchy-feely, is THAT you show Sherry that you will do WHATEVER it takes to make sure she's NOT THREATENED, rather than arguing that she SHOULDN'T BE THREATENED. This is not "fairness." This is devotion to eliminating emotional insecurity or disgust for her as far as you can. If Dawn & your speaking relationship is independent of Chris, then you may well have to pull way back on that, until Sherry knows that you're all hers, and she's all you'll ever want--and since both of you have left long-term marital partners, That's Not an Easy Sell.
I gotta say, so far this is not a woman's perspective, it's just a deeply human perspective. But you have a (typical) man's perspective on emotions, and that is that if your emotion doesn't seem to be JUSTIFIED by some logic or other, that we often make up as we go: Your-Ex-lover = NoNo; Wife-of-My-Friend = Innocent,NoProblem for me, So LogicallyNoProblem for you. My knowledge and experience says "GreatLoves" or ExMaritalPartners too much emotional momentum still trickling through from the past; minor affairs, maybe, maybe not. But that's my logic, not everybody's. What's Loving for you is not what I expect for me, because you're somebody OTHER than me.
Gotta go, but there's more where that came from.