Well, he's taking her word for everything basically because she's got him by the balls. In some important way, she's got a chokehold on those parts. The little accomplished liar learned by example. Liars learn that behavior, they don't just pop out of the womb lying. Sociopaths breed sociopaths, liars produce little liars.
All you can control in this situation is your (re)actions. I reiterate: I would never be alone with the children. Your son will wake up eventually, and you can be rid of the problem woman. In the meantime, speak the truth and do not get sucked in. Have witnesses whenever the children are around, especially the little liar. Because whenever a child makes an allegation of abuse, we have no choice but to take them seriously. And therein lies the problem with little liars. You can never call them liars.