Sexual abuse is insideous and touchs many. If there is sexual abuse in a family it is not uncommon for all the family to protect other family members (and let it happen over and over to the children in the family), ignore it, deny it, look the other way, blow it off. It is just so huge. Please do not let your children be affected by this.
Keeping your two children safe is the #1 priority and then yes, I would report the issues regarding your step son to the authorities and let them handle it from there. Those behaviors are not normal or even close to it.
I would not let your children out of your sight right now. Not for 5 minutes.
ETA: And yes, IMO space is essential right now. You don't need to make permanent big decisions but space can happen right away and you need it for your own clarity regarding co-dependence and your af as well as to protect your children so you don't have that on your shoulders until things are figured out.