Daniel-p, great to have you back here.
My 2 cents:
If she doesn't do anything with her faith, why teach it to our kids? Why must my baby girl not celebrate birthdays or Christmas? Just because that's how we grew up, but don't care enough about anymore to live our lives in accordance with our old faith? What about when it comes to blood? Who's going to decide whether or not she gets a blood transfusion if she needs it? Is she going to be indoctrinated against blood and then suffer the agony and guilt of personal defilement when her father tells the doctors to administer the transfusion?
Witnesses may not attend or go in service, but the beliefs are usually deeply embedded.
When your wife stopped going, I think that the guilt over not attending may be reinforcing her beliefs and so she is compensating by 'at least' teaching her children.
As you are seeing, though, the beliefs are very damaging; your daughter imagines Satan being happy over your actions.
I can't think of anything more screwed up than scaring a child into thinking about devils and demons.
Here is the thing; you must take care of yourself, keep yourself healthy physically, emotionally and mentally. Your children need you.
You might need to separate or divorce your wife in order to do that; I have 2 people close to me whose choice was to either take the jump off the bridge, or leave the marriage.
If that is where you are heading, please, leave the marriage; your children need you, and they will be better off in the long run to come from a divorce than a suicide affected family.
I hope that doesn't sound too dramatic, but it is how I feel.