your story really reminds me of, well, me when i was a child. :) I never went to meetings, my dad was "wordly", my mom never baptized but to this day clings to the faith half heartedly (luke warm, ha). i celebrated holidays, but not in school, and the flag salute and national anthem were out of the question. in my mind, b/c of my parents teaching, i was a "true christian". later, i "made the truth my own" at the ripe age of 14, but all throughout being a young child, i felt so different from the kids in school, but at the same time different from the other wittness kids. it's horrible to be so torn, it caused a lot of social problems for me.
maybe you could reason w/your wife, and instead of argue, tell her you DO respect HER beleifs, and part of her beliefs are respecting the head of the household. remind her that you would never do anything to harm your own children, and as the head of your household you will permit HER to go to meetings, but not your children. also, tell her that the children really aren't any religion, because technically they are being raised in a religiously divided household. therefore, it is disrespectful to YOU, for her to announce to their school that they are JW's and can't participate in holiday's at school. chances are, like i was, your kids are confused why some things fly at home, but not at school. it's really setting them up for living w/double standards. it's not teaching them to be genuine people. also, getting a divorce would lessen the chances of your children ever becoming JW's. "religion tore my parents apart" is how their story would go. if your wife wants to worship Jehovah, that is her right as an adult. but as the head of your family, it is okay to say no to the kids being indoctrinated. when they are older, they will know their mother as a kind, religious woman, and maybe they will be inclined to ask questions, and yes, maybe one day they will want to go to the KH as well, but it should be when they are old enough to decide for themselves this is a free country, and we can't stop grown adults from believing what they (we) want to believe, but you have the right (and in her line of reasoning, the SCRIPTURAL right, to put limitations on your family's religious activity. out of respect for your wife though, i would suggest only applying this to the children, not to her, as it sounds like you respect her mind. she wants to raise your children the way she thinks is best for them, but according to the religion she wants to be a part of, this is not her decision in the end, it is yours.
these are my thoughts on the matter. oh, coincidentally, my mother left my father b/c he wouldn't honor her religious beliefs and get married. so, as a result of an argument similar to what you are havng, i grew up in a single parent household. that is way worse than being raised by two people who have religious differences, in my opinion.
i hope it all works out for you and your family.
SB