As others have said - this is your husband's screw up and now many years later his child who could, believe it or not, turn out to be a blessing to yoru family. God finds a way to take the bad and turn it around for good if you let Him.
I understand you feel pain - who wouldn't. I'm not sure why you got your kids involved at this tender age. Where you trying to punish your husband - maybe subconsciously if not consciously? Your kids are at an age where they need to feel secure and not that there's suddenly this person who wants to change up the dynamics of your family. Leave your kids out of this as much as possible. Allow your husband to repair the trust with your kids - becuase even though it occured before they were born this is a breach of trust as far as they are concerned.
Then step out of the way. Let you knucklehead husband figure out how to deal with his grown daughter. It's tough for everyone involved - and of course, for the youjng lady too - and for you. My husband's brother had the same situation - but at the time the child was born everyone knew about it and she was his only child. It is tough - no doubt and it's not fair - but we live in a fallen world and when people do things that are wrong it frequently impacts lots of people around them.
Now you need to pick yourself up, dust yourselff off and get back to life. It happened a really long time ago, you've had a chance to mourn the situation and the way things used to be. A co uple of nights of crying was cathartic but it's time to stop that. Now you have to help YOUR kids get past this information that they really didn't need to know about for a few more years... Talk to a good counselor about how to heal the situation within your immediate family and move forward. You can do it.