An Unwated House Guest-OPP

A man is upset about the house guest his wife invited to live with them. It's not about too little space. This man was once way too close with the house guest.

Mike & Kate--
My wife and I have been married for over 15 years. We have kids and a great marriage. Her best friend who lives in another state is moving back to Boise and my told her she could live with us until she gets on her feet. She just got laid off.
We have people stay with us all the time. We have enough room at our house and it's usually not an issue. My brother lived with us for a while, my wife's cousin and even our niece when she was in school. So house guests are the issue.
The problem is this friend. When my wife and I first met we were hanging out with a big group of friends. It was very casual for while. Not so much dates but just all of us getting together as friends. My wife and I were attracted to each other and always flirt. Well one night after way too much drinking, my wife's best friend (the one moving in) and I were the last at the party and ended up sleeping together. It was a huge drunken mistake on my part. I woke up regretting it immediately. The friend is a lose woman. It was no big deal to her. She wasn't looking for anything. She slept with everyone. I asked her never to say anything to my girlfriend (future wife) and she didn't.
Soon after my wife and I started dating and ended up getting serious and pulled away from the group. My wife's best friend was always around and for the last 16 years has made me very uncomfortable. Basically she is crazy. She does inappropriate things when no one is looking, grabbing me, mentioning, "remember when.." I was so grateful when she moved out of state 12 years ago. I would always encourage my wife to go visit her. I unfortunately had to see her every year or so.
Now my wife has told her she can live with us. I told my wife I didn't want her to and my wife asked for a good reason since we let everyone else move in with us. I gave some lame excuse that they would be partying all the time and my wife just laughed and didn't think that wasn't an issue.
I should tell you my wife is a very jealous woman. She gets upset if I look at another woman. I would never go to a strip club with the guys. And even if a previous girlfriend comes up (over 20 years) she gets mad. So I can't tell her the truth or can I? I don't want this stage 5 clinger in my house! But if I tell my wife, she'll divorce me. What should I do?

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