i'm sorry to hear about your daughter, i don't think it's fair she tell you that she doesn't want to "expose" you to her kids, like saying you are a freak and "showing" you to her kids would twist their minds or something, i would be very hurt if anyone said that to me, this is a great time to educate her children to respect other people's diversity, and teach them that people not always fit in little boxes, it might even make them more relaxed about gender roles, i think it's very disrespectful of her to say that, even if she doesn't really mean it like that
about your wife though, that is very hard, i wish i could give you some advice on how to deal with that, but it's hard and i don't really know what to say, *hugs*
i think she is mostly sad that she was "lied" about the real you and that the person she fell in love with was not the real you, or maybe even that she may have "caused" it, my suggestion would be to find some therapist to help you both