Saying 'if we ever get back together we are going shopping for an engagement ring' is 1) an incredibly mean thing to say to you and 2) slightly impractical and short sighted considering she broke off...her ex is playing the all or nothing 'marry me' card.
However I know that some relationships often need an external stimulus to be taken to the next level - you don't know what you have until you loose it sort of thing. You may be that external 'fling'. I would still play it cool and try let them sort it out hoping he eventually fizzles out or makes a mistake. She's confused - you be crystal clear but look after yourself too in all this. You also can't compete with his 2 years with her in terms of longevity so try out compete him by being smart, rational and what you say. I wouldnt get involved too much but maintain yourself as the better catch - if not for her, for future lovers. His balloons 'touched' her. You need to have also done something touching perhaps in her eyes. I would personally ditch her or call her out for saying such a hurtful 'if we get back together' (thats not very fair or compassionate of her) statement but that's just me. She might like having two guys chase her - maybe you too should be chasing other girls.
I'm not suggesting you do this but right now only you and her ex are experiencing loss. Let her experience some loss. It would be interesting to test her to see how she reacts to potentially loosing you. I personally would hate to be in limbo waiting for a girl to 'decide'. I would not put up with a girl yapping on about her ex like she is. I would either blow her away and take her on a trip or something that makes you piss all over a room full of balloons or ride on to new pastures.