I know people do not like if someone refer to the book but the mistress thing was in the book. I believe that it had the purpose to remind us that Tom is just a human being too (in fact he was not such a nice guy if you think about what he was doing). But most characters had mistresses in the book , that is one thing that highlighted that the Kay-Michael relationship is very special in that world.

I always thought that Michael was not demeaning Tom but basically telling him that things will get ugly (like Fredo's murder) and he should decide whether it was too much for him or not. Tom decides to assist in all what will come which further proves that a. he understands why Michael is doing the things he does b. that he is not such a sensitive person. Next scene he is convincing Pentageli to commit suicide. - we see this in action.