Colditz - will you be my mum?
I think this thread has turned into more of a general debate than the OP's initial question, but back to the OP... Yes, he probably was having sex. Yes, it is your house and your prerogative to set the rules as you (and DP) wish. However I also agree that you might find your relationship becomes more strained and less truth is passed between you if you lay down the law too firmly.
The fact that he is your stepson is relevant because he will naturally be feeling slightly uneasy in the house, regardless of how much you love him and how long he has lived there.
I was fostered, which is a very different situation, but similar in the fact that I didn't have unconditional love from all adults in the house. I was always aware that if I did anything that might really upset my foster parents, they could ask me to leave.
The danger in your situation is that you don't come across as being terribly tolerant of DSS, and if he is as insecure as I was about this, he may well have quite a hard time in trusting you, and your relationship with his father. The whole "not under my roof" thing is indicative of the possibility that he may feel an outsider in his own home. Perhaps you should explain to him that this is his house and he is never going to be asked to leave, despite his choices in life, but that a sexual relationship between a couple who haven't been together very long, when you and DS are in the house, makes you very uncomfortable, as you are responsible for his well-being, and that of his gf, when they are in your house.
That said, I personally think that I would rather my children being safe and comfortable in their own home than vulnerable outside. This includes drinking and possibly drugs, but I also understand why others might prefer to brush this kind of thing under the carpet and pretend it doesn't happen.
The undeniable fact is that these things are fun, teenagers will do them, and if they are in a safer environment they are less likely to be at harm.