The first question I would have is not around what lifestyle a parent(s) was living but what parts of it were appropriate - and especially appropriate for the understanding and phase (age) that the children were in. And the openness and honesty of what is going on.
"Damage" occurs to us when we are young just by living. I feel the biggest threat to the outlook of children comes from seeing dishonesty, lack of integrity etc. When we're young we're trying to understand the rules of the road and in order to do that we have to be able to accept something as being true, accurate. When you are caught in an environment where you are constantly discovering lies, half truths and various deceptions it weakens your confidence and creates the impression that that is the way life needs to be lived.
Add to all this that the kids are living in the "current culture" the same as we all are. And we all know how cruel that culture can be at young ages. The choices we make as parents WILL have impacts for our children if they are public - or even something that the culture we live in can find suspicious if noticed.
So, it seems there aren't any easy, pat answers. Each situation is unique in what will be the best - or worst. But the one thing (ironic) that holds true is the same thing we all talk about all the time about between ourselves.
Honesty, good communication, integrity.
Children can easily grasp love/connection between more than one person ! It's a default part of their lives. Most children have multiple people in their lives they love, and that love them ! They naturally grasp the different levels between parents, uncles, cousins, grandparents etc. It's all the same and yet different - but all generally good.
Only as they reach an age of some sexual awareness and begin to get some inkling of what the broad culture accepts as "normal" does any question arise for them. This is when it seems to start to get a bit sticky.
Kids don't need (and usually prefer not) to know about adults sex lives until it becomes appropriate. And that time varies. But when it comes - the key is the same, honesty (to an appropriate degree) and integrity.
Ooops - interruption - have to run............
Maybe more later............