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Seeing him may be therapy for her if he hasn't changed it will make it easier for her to walk away and never look back, stipulate that your children are not to be around him at all and that she should see him on her own that is a fair enough compromise. Every child no matter what that parent does to them wants to be love and feel love by their parents, she may want to see if he has changed enough to allow him in her life but I would be worried about your children around him especially if he was capable of molesting his own daughter. Allow her to meet him and see how things go she may just want to find closure that chapter of her life also so allow her to do so if that is what she needs to get over the pain he caused her when she was young.
You have very good reason to worry about your children meeting her father and I can't understand why she doesn't see the danger in them meeting him. She lived it and she should know the danger she will put her children in if they meet her father, if he can do it to her his own flesh and blood he could easily do it to his grandchildren. Although he may have changed in prison that is because he wasn't around children in prison. She may needs someone else to tell her that it's wrong for her to push her children on a known child molester possibly a professional who actually knows what they are talking about when it comes to abuse and molestation, they need to tell her that she could possibly be subjecting her children to harm and the same thing that happened to her could happen to her children and then ask her if that is a chance she wants to take.