This explains what I'm going through...sorry for the blog spam, just asking for different experience feedback.
Sorry Cyber, I have no experience with this to share.
The childcare experts all emphesise stability and routine for children. Seems like your relationship with the childrens mother was not too stable. Perhaps the best thing (long term) is for them to be with you rather than their mother.
In your shoes I'd be as honest with the children as possible (without being too explicit about the sex offender).
Try to make sure they understand that it's not ther fault.
Give them stability.
Let them know they are loved.
Hope for the best.
Don't be afraid to ask for help (I had a hard time looking after just two kids last week when my wife was too ill to care for them, I called on my mother-in-law to help).
Sometimes as a father you just have to get your head down, work hard, and be there for your children. Put everything else on hold and just work, care, sleep for a few months until things settle down.