If your boss is having an affair with your colleague, what would you do? When my boss got into a similar act last time around I quit :)
I guess office romance is neither new nor avoidable. When we spend long hours at work, attractions and relationships are a logical consequence we have seen.
It only becomes painful when the person in question is your boss. Furthermore, if the boss is in a relationship with your immediate colleague the team dynamics worsens. In a world of frequent boss-bashing, additional ammunition gets loaded at the boss. Everything s/he does is viewed through a magnifying lens. Even if they conduct themselves professionally all of us around them get distracted due to the visible relationship. The trust level decreases. Every decision feels like a conflict of interest.
The boss is constantly seen as somebody who is favoring her/his courting partner and the colleague in question is seen as a spy. The team around them gets distracted due to their frequent meetings or disappearances in the name of work. Talks about ethics, integrity, and morality get heightened if one of them is married outside of that relationship. Acceptance of leadership and productivity of the team can suffer.
What did you do when you encountered this last time?