You're not overreacting. It involved another man seeing her naked-- she should have asked to make sure you were okay with it first.
If he was still working as a masseuse in a professional capacity, and she'd paid for the massage and it was done in a spa or massage parlor, that would be one thing, but when a man offers a female friend a free nude massage at home, there's not much question of his motives there. Tell her that if she wants to go get a massage from a female masseuse at a spa, you'll pay for it, but that you're not comfortable with her accepting those offers from your neighbor.
It might not be exactly cheating, but it is inappropriate behavior on her part to have accepted his offer and I would have a talk with this man as well and let him know that you are not okay with him giving her massages.