Hi gilybea09, When such perversness overtakes a person, there tends to be a string of undiscovered occurences. This problem did not initiate with your daughter's situation. Your husband brought undisclosed 'baggage' into the relationship. Had the behavior stopped before you were married or if your husband had chosen to address these issues prior to your marriage, he might have experienced victory over these compulsions.
The advice you may be receiving from your husband's family, may not be particularly relevant in this situation, primarily because this is the family that may have been instrumental in creating his present behavior. Their concern, as well as yours, should be the safety of your daughter. Incestuous behavior is also adulterous behavior, so if you're concerned about satisfying the 'letter of the law', I believe you're justified in whatever you decide to do. Seven years is a long time to go without recognizing signs of pedophilic tendencies or perverse behavior, which I suppose makes your husband somewhat clever, or extremely threatening to your daughter.
Finding a safe place for your daughter is the priority, and beginning counseling as soon as possible to begin the healing process and to provide the best chance for your daughter to live a healthy life, and to build trusting relationships. The choice to reconcile, or divorce is yours alone, but I do not believe that you are in violation of God's word, if you choose to divorce, following a separation.
Years from now, when your daughter is better able to process what has transpired, she may come to a time when she has decided to express forgiveness and wants to initiate a safe relationship with her father. Regardless of what you decide to do, I would continue to present your husband's problem as a condition from which he can be delivered/healed. In spite of circumstances such as this, children continue to love both of their parents and don't necessarily perceive the situation the way onlookers might, and so I encourage you to move toward forgiveness and reaffirming that her Father loves her.
Many experience tragedies in their lives, but God is able to heal all parties involved, even though the family itself changes considerably from what it was. I lost my mother at 4 years of age. She died at the hands of her abuser, my father. Nothing is unforgivable. I will pray that God gives you wisdom.