I'm not disagreeing with any of the possible impact on the boss's productivity, but rather how a majority of response here are of the kind: "Fire him, be the alpha male! Ouga ouga!" Firing him might be the correct answer; but it's in no way evident.
Try this thought experiment: suppose you have 2 employees. Would you fire one of them if he sleeps with the other's girlfriend, or would you consider this a 'personal matter' and not interfere?