Does your wife perceive this affection as “gay behavior”? Men tend to see such behavior from a sexual perspective. Women can be affectionate with each other with no underlying sexual attraction. It is too bad when men will not allow themselves to enjoy a hug from a more generic perspective. The warmth of human contact has great healing potential. The fact that you took notice of nipples indicates that you are not viewing this as a loving behavior but a sexual one. That alone tells me that you are projecting your perspective and not looking for any other understanding. Incidentally, what you see as “hardened nipples” may not be the result of arousal. Cold temperatures, cloth friction, fever, medications, and differential anatomical formation, any or all of which, can easily explain this appearance.
Not until you discuss this hugging and kissing behavior and your revulsion to it with your wife will you be able to answer your own question of when enough is enough, or if this is even the question to be answered. As the common metaphor states, if you hear hoof beats, think horses--not zebras. Of course, if you are standing on the Serengeti, the opposite would be more accurate. Thus, you need to know exactly what you are observing, not just what you assume with only your side of the story. An open dialog with your wife may be quite illuminating.