Well, egg/sperm donation is sometimes considered a controversial topic. Well, it's your wife's body. I can however see how it will be awkward, especially when you know the people involved. "Oh lokk honey, there's your child, not really). Are you jsut giving the egg or is your wife the one who's gonna be running around all pregnant and stuff? Because that would add to the awkwardness, you having to deal with a lot of the stuff that, well, people in a family where there is a pregnant wife have to deal with. So that could be awkward.
If she's not gonna be the one running around all pregnant and stuff, then you can look at it that way, or you can look at it as donating cells, and that's it. Now of course if they really want a kid, they might find someone else who is willing to donate, or just adopt someone. I mean I know it's cool to have a kid made from scratch and all, but genetically it's only gonna be the child of the father, and most people I know of that have adopted (often due to not being able to have a child) have prior to adopting had this notion that it would be different and that they wouldn't love them the same, and in every case they've said that they turned out to be wrong, of course others might disagree.
So yes, it's your wifes body obviously, she can make her own choises blah, blah, blah, the question is how much it will affect you beyond knowing that the kid in that one family is thechnically the son or daughter of your wife, and wether you will resent that person or not is also an interesting topic, you might be surprised.
But yeah, for sure talk to you wife about it so you can be on the same page, heck you could even talk to the family in question too. Discuss other options if you're really hellbent on not letting it slide.
But as I also said adoption is a great option, there are tons of children already in need of a home, it benefits all parties I would say. You don't have to resent anyone, a child gets a happy home, hopefully and a childless family gets a child. And if they don't want it because it's not "theirs" then you could always remind them that the other one would only technically be half theirs, if you want to be a total [censored] and all.
And why would the woman want to go through pregnancy and childbirth, I haven't heard any woman say that pregnancy and chilbirth is a totally awesome experience.
In the end, get everybody on the same page, it's your wifes body she can do as she pleases, freedom of choise and all that, however however however all parties should be aware that there are many option beyond your wife donating and them ending their days unhappy and childless.
Wow, that was quite the ramble, I hope it made sense.