"Cheating" depends on the boundaries you have agreed on in
your relationship. Every couple has different boundaries and expectations. For example; some people consider flirting cheating. Some people think flirting is fine, but actual intercourse is cheating. Some people have open relationships.
That being said, it's apparent that you have the understanding that you're in a monogamous relationship, which is great. I think you have every reason to be concerned. She's definitely interested in this guy, and if it hasn't progressed past friendship it probably will.
The only thing to do is to have this conversation with her. You have to be prepared for her not to respond the way you want her to. Talk about your concerns and how this makes you feel. That is the starting point, but I doubt that alone will work. Then, depending on her response, you are limited to several options.
1. Accept her behavior and hope it passes. If you choose this option, the relationship will almost certainly progress, probably to a sexual relationship. This is basically the "bury your head in the sand" approach, and is the most common and least successful. It's common because denial is often the easiest route.
2. Redefine the boundaries of the relationship. Make sure that you and she are clear on what "cheating" is, for you.
3. Refuse to tolerate her disrespect of the boundaries of your relationship. That will mean letting her know that if she continues this behavior, you will be moving out and filing for separation.
I'm going to send you an educational link regarding the development of affairs. Very few people start out to have affairs. it starts innocently, with a drink and talking about problems, until it progresses to "What have I done?!"
Danger Signs of an AffairPeople avoid separation, because they see it as giving the other person more opportunity to be with the other person. In reality, it often gets them to thinking. She is basically disrespecting the ground rules of your relationship. If you tolerate disrespect, you invite more of it.
You also need to go to Amazon.com and get "Love must be Tough" by James Dobson, Phd. It is still the best guide on the subject.
This is a difficult spot to be in, and there are no easy solutions. Right now, the best thing you can do is to educate yourself on your options and the best approaches. Please check out the reading I have recommended and let me know if you have any more questions.