I have lost my iTunes library when i opened an account for my wife on my mac and synced her iPad with her a/c. What happened

I am trying to figure out how what you say in the topic title ties together with what you have in the body of your question. What kind of "account"? Do you mean a new user account on your computer? If that's the case then your library is in your user account, not hers. Switch back to your account for your library.

In the meantime:

iTunes Store: Associating a device or computer to your Apple ID - http://support.apple.com/kb/HT4627 - In connection with, "When you turn on iTunes Match or Automatic Downloads, or when you download past purchases on an iOS device or computer, that device or computer becomes associated with your Apple ID." "Your Apple ID can have up to 10 devices and computers (combined) associated with it. Each computer must also be authorized using the same Apple ID. Once a device or computer is associated with your Apple ID, you cannot associate that device or computer with another Apple ID for 90 days." - Additional instructions for "Removing an associated device or computer from an Apple ID"

Basically you cannot use a computer with more than one AppleID in 90 days if you are trying to use iTunes Match or for re-downloading items (not purchasing new music, re-downloading). There is not official statement as to why this is the case but one outcome would be deterring piracy. People gripe here all the time about it but it's how things work.

The questions seems to be does my wife's user account with her Apple id count as another Apple id on my device even though there is no other connection.

For the purposes of Match and redownloading, yes.

I don't know about your CDs. They probably should not have vanished if you are using your library again but people seem to report something similar on occasion. The locking out of multiple AppleIDs using re-downloading services makes some sense (in terms of dissuading people from going to a friend's computer and redownloading all their purchases or music collection on the other computer) but the CD business seems to be something that inexplicably happens and I guess is why one needs to have a backup at all times.

My final question then is "why does the cloud not take the music off the phone and make it available to the Mac"?

If it is in iCloud, it is available to your Mac.

I don't know the answer to your question directly but your Mac is supposed to be the master source for media on your phone (with the exception of iTunes purchases you cannot transfer phone to Mac without third party software). The exception is new purchases in which case iCloud acts as the master source for both. Given that I could see it being quite possible your phone does not transfer to Match, but I don't know for certain not having Match myself.