I am really not trying to be sarcastic here, but are there progressive, secular, liberal Muslims? I am sure there must be, but it seems like a very all or nothing religion, which is the reason I couldn't have my children brought up in it as it affords them no freedom of choice.
My girlfriend does drink and obviously she is with me even though I am an atheist, so she is more liberal than others, but to me she still seems very extreme.
I'm an ex-Muslim and I was in the same boat as you.
I come from a cultural Muslim community, so only my immediate family knows of my rejection of Islam. To everyone else, I'm just non-practicing.
So it was relatively easier for me to do that in front of my wife's family as well. I hate to say it comes naturally now, but it really does.
They don't ask, I don't make a big deal out of it.
I have a very hard time explaining the the duality of liberal Muslims. My wife as well genuinely believes in Islam, but doesn't pray, drink, doesn't cover...
I gave up a while ago or trying to figure out how her mind rationalizes it all. I've had numerous conversations with other people and its the same duality.
I asked my wife many times if she was sure... because I'm going to hell according to Islam.
In any case, in my own head, I just accept her as a cultural Muslim. It's more spiritual and community based than any real acceptance of Islamic principles. I guess some people have more of an attachment to things than other.
There are loads of progressive/liberal/cultural Muslims out there. I have parts of my community that are basically just Muslim by name and celebrate the holidays. That's the extent of their Islam. But the community bonds still remain. It is hard to break these community bonds if you are Indian/Arab or something like that. Out community is just not at that level where they are willing to accept atheism. So we play along. A couple years back, there was one known apostate. He was in medical school and passed away. Half the people wouldn't even come to his funeral. The other half were talking about him getting cancer because he left Islam...
I don't wish that kind of hatred on my family or myself (more my family, as I could care less about community).
As for me, I have no issue raising Muslim by name children. As long as they don't turn into hadeeth following quranic nutjobs.
Just make sure you and your wife agree to teach them a very liberal interpretation of Islam.