I would handle it just like you said iLuvNature. In my opinion a true friend would never keep something like that to him or herself no matter how much it might hurt. It would hurt even more if you found out down the road that your friend knew and DIDN"T tell you!
So yeah,I'd give the rotten cheater a chance to come clean themselves(I'd probably give them 24 hrs tops!) and if they didn't then I would definitely let my friend know.
And I know my friends and they would def do the same for me.