Girl I'm dating to move in with my friend? Right or Wrong?

So I've been seeing this girl from my office for approximately 5 months now. We've been moving relatively slowly in regards to labeling ourselves boyfriend/girlfriend, but we have been intimate with one another and the word LOVE has been tossed around a couple of times, from each end.
Her closest friend in the office is also seeing another guy in the office, but she's made it clear that she doesn't want anything serious with him...she only wants to have sex. And although he claims that that's all he wants, he actually wants more.
I presume knowing this, he's become very chummy with my girl by inviting her out to drinks, inviting her to hockey games, and most recently asking her to move in with him - since where they currently live, they claim is too far from the office (45 mins). She, without hesitation, agreed.
When the girl whom only wants sex, caught wind of their arrangement, she said "no way jose".
Me on the other hand, their arrangement offended me to no end, and I've called it quits with her. How she can be okay being with me but living with my coworker whom I know very well.
It's highly disrespectful, I think.
Am I over analyzing things? Or did I do the right thing? Please let me know.