See, this sentence changed the whole thread for me. You gave the impression from the beginning of the thread that Flirting Man knew that the woman was married and that she was his boss’s wife; at least that’s the way i read it.
While there is always a risk in socializing with co-workers, and one should perhaps watch one’s behaviour a little more closely, it doesn’t strike me that this guy committed the world’s worst social faux pas. So he hit on a woman at a small gathering–big deal. I’m sure he made something of a fool of himself, especially if just about everyone else there realized what he was doing, but it just doesn’t seem like the sort of thing to get all steamed about.
And the fact that he didn’t notice the wedding ring or engagement ring is not too unusual. When i was in my early twenties, it never occurred to me that any woman i was interested in would actually be old enough to be married. Once i reached 30, however, i started to pay much more attention to what jewellery was on the left hand. 
And i really think that your friend needs to learn how to deal with his jealousy a bit better, if only to prevent the early onset of an ulcer. I understand that people deal with this sort of situation differently, but i’ve always thought that such excessive jealousy is at least partially indicative of personal insecurity and/or a lack of trust in one’s partner. Of course, jealous types often deny this, but i think their actions speak louder than their denials.
I remember when i was seeing my first real, long-term (nine whole months!) girlfriend when i was 20. I would get really jealous whenever she talked to other guys, and even back then i knew it was because i was worried that she would find them more attractive and interesting than she found me. Now i’m 34, and i’ve been with my current girlfriend for almost two years. I trust her completely, and if i saw some guy hitting on her i’d mainly just be interested to watch her shoot him down. I would certainly feel no need to step in, unless, of course, he started getting aggressive, which is another thing altogether.
I think you handled the situation fine, Phlosphr, although if the guy didn’t know that the woman he was hitting on was married (esp. to his boss!), then probably all you needed to do was inform him of that fact. Flirting Guy needs to learn a few more social graces, and your friend needs to take a chill pill.