"he can't switch off in the evenings so he ends up going to bed between 2-4am !!! This makes me so angry as its then a vicious circle. He is tired, I wake him up, he gets angry, evening comes, he wakes up, is in a better mood, stays up late blah blah.
Today for example, its nearly 1pm and he's still in bed. I've been up since 7 with the kids, cleared up, washing on, breakfast etc. When the baby wakes I will take them to the park. He will probably get up at 2ish, be in a mood, grumpy etc. I might get a decent conversation around 4ish, by which time the dcs day is nearly over !!! I'm so fed up."
I used to live like that. Every day. Except that MY X was abusive. I don't see that the hell that I lived would be much different to your day to day. If we cry tears of sadness, at the hands of another, does it matter what the excuse is? Your DH is IMVHO using his illness or at least proffering it as a possible reason to control what you and the entire family does, and to justify his checking out of the family.
My ex used to use his culture as the reason for his behaviour. Both the illness and the culture are unassailable excuses.
I see that you have spoken and laid down a few serious talking points, which is great. What happens next is crucial and you must be absolutely relentlessly honest with yourself here, and adopt the most black and white thinking you have ever managed to muster.
IF he adjusts his sleeping times, and goes to bed at a sensible time, considering the attention the children and YOU need, then that is GOOD.
IF he goes back to the Quacks and gets some more meds, pain relief, sleeping tablets, and YES antidepressants, if he asks for counselling and attends, no matter what, on the grounds that he NEEDS to be with people who DO understand him, THEN I'd say it's worth allowing this situation to carry on.
If he fails to apply himself to your family/relationship and cites his illness, but all the while refusing to lift a single teeny finger to actually HELP himself then really, the living apart thing might be worth a shot. You might then get some help with child care, by qualifying for help from benefits or something. Can he not get DLA or something?
I don't see that he's doing ANYTHING to help himself, he's avoiding you all, neglecting you all and abusing you all on top of it... all cos he has M.E. 
He has to understand that if he is not willing to put in the effort to be civil, to be the best he can be, whatever that is, regardless of what it takes then why on earth would YOU put up with life like this? Why would you raise children in such a desperately unhappy environment. What advert for marriage are you showing to your DC? all very good questions for your H to ponder.