Here's my quick advise on the matter:
I was in a similar situation, except it didn't involve me having to compete with an ex-boyfriend. I was with this girl, and was refraining from sleeping with her, as we weren't together for more than a couple weeks. I wanted to show her that I respected her and all of that good junk. And yes, I am one of those people that has to genuinely like a girl before I'll even come close to sleeping with her. Anyways, the girl went elsewhere to get some action; namely a few doors down in her co-ed dorm. She told me the reason for things going sour was that she was getting impatient with me, but wouldn't elaborate. Eventually she admitted she felt I didn't care about her because I wasn't showing any signs of wanting to sleep with her (even though we kissed and the like often enough).
So, the moral of the story is don't wait forever to sleep with the girl, as she might go elsewhere to get some play. In that case, the size of your dick is irrelevant, because it won't see any action. Oh yeah, and most likely her friends are overexaggerating about the ex's size. Not many guys are hung 8.75", unless they are the result of Penis Enlargement. So basically what I'm saying is that her friends are probably full of shit. If not, then your girl is just exaggerating and said the ex was huge and to them and they are merely echoing that information. Yes, the ex may have experience with her in bed, but to my thinking, there is usually a reason why a couple breaks up. ANd usually that reason is due to the fact that the two don't get along in one way or another. So, if she magically wants him back because of his so-called monster wang, then she's probably not worth it, because she probably isn't seriously considering going back with this guy exclusively. The reasons for the previous breakup should keep her away, unless maybe he was the one that broke up with her and he is now "sorry" for the whole thing and wants to show her how much he "cares" about her. In that case, she's probably being set up for disappointment.
So here's my final paragraph of advise on relationships. It may not be relevant to the topic, but my train of thought is heading this direction, so I'll let it fly...
Try to never let emotion get in the way of your logic, as you generally get hurt in the end. Sometimes it's easy to fall in love with the idea of being in love. And sometimes it's easy to just fall head-over-heels for somebody without realizing she may not be that great of a person. Once you find that special girl, she'll probably make you feel the same way, but from a logical standpoint, you will know she is right in practically every way. Sometimes there are major flaws in a girl that go overlooked because you let your emotions get the best of you and don't notice them. I know in the past I've spilled my heart into girls that I shouldn't have wasted my time on. Sometimes it pays to look over things from a third person view, free from emotion and see where things lie. I guess no matter what you do though, you live and you learn, and sometimes it's going to hurt.
So yeah, I hope I didn't go too overboard on this post. I am not in your situation, so some of what I said may be irrelevant. I suggest you take the advice of the previous and future posters on this subject and kind of align that advice with your own thoughts on the matter.
- d_s