Hi dntdelay,
I'm sorry you're going through this
I can see why you are conflicted about how to interpret your wife's intentions.
Whatever you do, don't move out of the marital home before gathering information from a lawyer. You can often do an attorney consult for a few hundred dollars. Go in with a legal pad filled with questions and either have someone come with you to write things down, or take notes yourself. It's easy to forget what was said when you're under emotional stress.
Moving out of the marital home sets up a status quo situation that can carry a lot of weight in court. You don't want to have her file divorce and then be in a position with zero or weak leverage, trying to convince the court you are the healthier parent who happens to have abandoned the same kids you claim you are trying to protect.
If she wants to work on her recovery, that is great, and if she has a therapist who encourages her to set up an apartment where she focuses on herself while trying to rebuild the family, then that's another way to approach her intention to heal that doesn't jeopardize you and the kids.
Most importantly, how do I protect the kids?
I found the best way to protect my son was to focus on his emotional resilience. That meant using all of the communication and relationship skills I learned here and in therapy and apply them to him.
And in large part, that means validating how they feel. It is very easy, very tempting, to explain away the extraordinary abuse and safety issues with a BPD parent (cutting, suicidal ideation, impulsivity, etc.). Having a BPD parent means reversing the natural parent-child role, so that the child feels the need to reassure and validate the parent, instead of the opposite way around (which is healthy). So, your kids need you to be the parent who provides them with validation. Otherwise, they being to erase themselves just like their mom does, and they lose a sense of healthy attachment and the development of a stable sense of self. They need to know that they are separate from their mom, with their own feelings and perceptions.
Have you talked to a lawyer yet?