Hi Redstripe, I'd say it's nice to have a fellow convert-married-to-a-fundie in the forum, but I know it isn't all that "nice".
That said, I don't think my experience can inform yours much, only that I've thought about it a lot so we may be able to find some common ground. I'm always happy to share my opinions and experiences, but take them with a pinch of salt ;-)
Backstory - Whilst my wife is still heavily involved in a charismatic evangelical church here in the UK, and I am worried about my child's indoctrination, she's only two, and I lost my faith a few years before she was born, and my wife is only a little bit BSI relative to the extremes of fundamenalism. My wife and I had only been married a couple of years when I lost my faith, and I came out to her about a month or two after it happened. Our marriage survived, although it's mostly by turning a blind eye to each-others religious (or anti-religious) activities, which doesn't sound possible in your situation. I'm as shocked by the stuff she brings home from church as she is when she glances over my shoulder and reads the stuff I write here, but for the most part we live separate lives for those purposes. And she's well educated (degree-level). Does your wife have that sort of background? I find it hard to believe that someone could have gone to university and come away without the critical thinking skills which would condemn the sorts of practices you describe as silly.
I'm going to avoid suggesting divorce, but that doesn't mean it isn't an option. It's only because I have no experience with it, and I tend to agree that it is likely to be worse for the kids if their parents split. I'll let people who have been through it either as divorcee's or their children make recommendations on that front.
In all honesty, I struggle to see how you could get your position across to your wife. Not that it's impossible, but I have no clue how I would do it in my shoes, let alone yours. However, I do think you can still be a good role model and father figure to your kids, and protect them from her extreme beliefs. If you're lucky it will prompt conversation with her and help her to moderate her beliefs, but she's an adult and unlikely to change easily.
What custy said about not being in the wrong is probably the correct approach on principle, and hell, even when we do mess that up in practice, it's possible to still be the good guy by being honestly apologetic for flaring tempers; sincere about your desire to be a good, responsible human being. There be some truth in the ol' christian yarn of being a "good witness", so be open about what "being good" means to you and try your darndest to live up to that.
Regarding the emptiness/meaninglessness bullshit, like FO said, this is a common and easily refuted theist trope, but you'll need to spend time researching the arguments. For a humourous satire of it, see Edward Current's "What if God suddenly disappeared?": http://www.youtube.com/watch?v=pkCuc34hvD4&list=PL07E9BA4BE6154CB1&index=44. For a more rigourous, complete and voluminous account, read the entire back-catalog of writings by Dan Fincke over at Cammels with Hammers here on Patheos.
If she's the sort of catholic you describe her as, I'm guessing that divorce is not on her agenda? If not, then you have a lot of room to "work things out", that is, force her to compromise (you're already compromising). For my wife and I, although it's not off the cards, it's a last resort, and because her B-S-I stuff is not over the top I only have one stipulation: the day my daughter says "mummy, I don't want to go to church", is the day she stops going; and if my wife attempts to force her, I will interfere, and will push it all the way to the end if she makes me (I know she wouldn't). And I intend to tell my daughter this as soon as she's old enough to understand. You could do something similar. Tell your wife, and your kids, that she has no right to force these readings on them, and that you find it outrageous and want them to stop going; but be prepared for them to want to do it (even out of loyalty, fear or the indoctrination they've already received), and to let them continue, and try not to let that distance them from you. If they do decide to stay at home with you, try to make use of the opportunity to grow close to them, spend time with them, and teach them that they can be good, loving, fulfilled people without their mother's superstition; but above all let them know that you love them and want the best for them, and that everything you say or do is in their best interests.
If you're ever alone with your kids, start watching anti-theist vids on Youtube (I recommend 3vid3nce, c0ncordance, theramintrees and qualiasoup, and theoreticalbullshit and DasAmericanAtheist, but also humour like Tim Minchin and Edward Current). Don't force them to participate, just do it for yourself, and if their interest is piqued get them involved. Instead of preaching anti-theism at them, teach them critical thinking. Teach them science; encourage them to learn ancient history. Cultivate a love for fantasy (whether it's Harry Potter or Dungeons & Dragons or Video Games), and it will help them to see through the fantastical elements of the religion they're being taught. In other words, don't set yourself up in blatant opposition to your wife; she will probably win.
I only encourage covertness because that's my "don't-ask-don't-tell" approach. It's not an attempt to be devious, but merely to face the reality that if I did these things with my daughter and my wife found out she'd be mortified, and it might cause her to do strange things, i.e. it's in the best interests of my daughter, my wife and myself that I go to great lengths to avoid confrontation with my wife over these issues, even being a bit sneaky if I have to. If you feel you can get away with openly exposing your kids to anti-theistic apologetics, then do; all the more likely your wife will moderate/convert.
It is worth saying that, ultimately, we can't control the decisions our kids make, and depending on the cultural influences they have, our efforts may be in vain. It's important, not only for your kids but yourself, to continue to love your kids in the event that they remain religious when they mature, and to cultivate that expectation now, so that you are prepared if it happens. No doubt they're intrinsically important to you, so it's important not to let your approach to shielding them from their mother's influence get in the way of your relationships with them.
Finally, a bit of hope; while I have no delusions about my wife becoming an atheist, she has certainly become less willing to express her more conservative opinions, and, I hope, is slowly becoming more liberal and open-minded. I have certainly managed to achieve this with my dad, who is a completely different person to the man who I revealed my atheism to four years ago. And hey, even though you and I were born-and-raised religious, we still made it out the other end as adults. So don't be too afraid of what will happen to them. Just focus on loving them and being a part of their lives, and most of all enjoy being a dad. And there is worse suffering than enduring the dark days in a marriage, which is always going to have its ups and downs; even if at times you feel you're only doing it for the kids, that's a noble and meaningful and worthwhile sacrifice. I know, I know, marriage shouldn't be a sacrifice in and of itself. But sometimes it sure feels that way to me...