What criminal acts did Tom commit with Michael? Wasn't that the whole idea behind removing tom from the rough stuff and limiting his role in the family business?
As far as the mistress bit goes, i think that Michael's main goal here was to let Tom know that his 'sneaking around' does not go unnoticed. And that Tom was not showing respect for his don.
Tom was in on the last minute planning of the killing of the heads of the families in New York and I believe he was in on and witnessed Carlo being killed. He was also aware of just about everything Sonny did when he was interim head of the family.
Michael's "mistress" comment not only showed Tom that Michael (and Neri) were on to his every move, but it also harkened back to a derogatory comment Vito made to Santino years earlier, and also in Tom's presence, "I think you're going soft in the head with all that comedy your playing with that young girl."
Strange that Vito and Mike were so ruthless, yet shared a very strict moral code when it came to extramarital sex.
