When it comes to cheating and polyamory, there is a lot of grey area.
In a monogamous relationship, any extramarital sex is cheating, whether or not your spouse knows about it, because those are the rules in monogamy.
In an open relationship, any extramarital sex to which your spouse consents is not cheating, because those are the rules of open relationships.
Consent is the operative word, not knowledge.
Consent doesn't mean liking it, being happy about it, or wanting it. It simply means "giving permission."
Knowledge does not imply consent. Just because your spouse knows about it and hasn't left you does not mean they've given you permission to do it.
There seems to be a misunderstanding over the phrase "ok with it." One interpretation is that it means consent, another interpretation is that it means being happy about it.
If ILW2 means that her husband consents but is not happy about it, then I don't believe that's cheating. If she means that her husband does not consent, then I believe it is.
Since her husband has pipped in and said that he's given permission even though he's not happy about it, I don't believe she is currently cheating.
Disclaimer: This next bit is meant as a generalization and may not refer to this particular situation.
I hate it when cheaters think that all they have to do is tell their spouse that they're having sex outside the marriage, and that "makes it ok" because they're "being honest about it."
Being honest is not the same thing as respecting your spouse's wishes. When an armed robber goes into a bank and demands money, they're "being honest" about their intentions, but they're still robbing the bank.
p.s. screaming in caps lock sounds like a child having a temper tantrum and that's not the best image to portray when you're trying to be taken seriously. Sure, it grabs attention... the same way a screaming child in the grocery aisle grabs my attention... and makes me want to walk in the opposite direction!
I am who I am. I don't need labels to define me. They're sticky, and I hate the glue they leave behind.