I'd feel it was a bit of a red flag that he said he wasn't interested in it being sexual, and then she pushed the sexual aspect on him. I know if the sexes were reversed, it's not often appreciated when a woman says no thanks to anything sexual with a guy and he starts talking about all the sexual things he'd still be open to doing to her.
I'd probably just confirm with my OSO if they were or weren't going to become involved with them in anyway, and if they said they weren't, leave it at that, and not feel the need to address my friend unless they brought it up with me.
I too wonder why you aren't spending more of the weekends with one on one time, and if your OSO also feels like they'd like to spend more time with you, maybe making that happen would be more satisfying. Can the social event (which I assume you both find important enough to go to) be a lesser time commitment?
Happiness will never come to those who fail to appreciate what they already have.