My wife and her GF were together (and both very close friends of mine) tor about 10years before I became a part of the relationship. I VERY much felt like a third wheel; a side order sometimes. Once the relationship between S and I began to strengthen it would be somewhat uncomfortable for both of us to be affectionate when we were in the presence of R (our other wife).
What turned out to be a very important step in solidifying our relationship was overcoming that awkwardness and being open and honest with one another about how we were feeling. Once we all faced our own jealous feelings toward each other for the affection that the other was getting we were able to finally enjoy what makes each of us happy- to be in love and to be able to share intimacy and affection with one another.
I say if seeing her happy (with him ) makes you happy then that's how you tel her - encourage it and enjoy making your love happy.