Thanks for such a thoughtful post. I'm sure many people will read this and be helped by it.
Your feelings are quite understandable. Obviously, something about your wife's diminished breast size has triggered a response in you. In other words, her breast reduction represents something very important. You say you feel betrayal, loss and depression.
Let's start with betrayal: perhaps you've always loved larger breasts and been turned on by them? If your wife reduced their size, perhaps you feel she may have done so in order to hurt you? Or maybe you're afraid she did it to turn you away?
Loss: If you loved her breasts before, it's understandable that you feel you've lost something.
Depression: you're beating yourself up over your very understandable feelings. This can lead to depression, as can something even more destructive, which you haven't mentioned: anger. Somewhere inside you, there's a very angry man. Angry that your wife did this, because it feels like she did it TO YOU.
All of things things can interfere with desire. You're probably unconsciously thinking about this issue whenever you have sex, so it's no wonder you're penis isn't cooperating.
So what's next? You two need to sit down and talk about this, and you need to express your feelings openly and honestly. Begin by reminding her how much you love her and how much you're attracted to her. Then tell her exactly what you've told me--only don't be accusatory or blaming. Take responsibility for your own feelings by sharing them with her. At some point, you'll need to allow yourself to express your anger and also your grief. This needs to happen in order for you to move on. If you have difficulty doing this, I'd suggest the two of you see a counselor who is trained to help people communicate about sexual concerns so you can talk to each other in a safe space. Remember that no one's feelings are wrong--just different from each other. Please let me know how you're doing. Best of luck to you. Dr. J