Why on earth, the first time he was rude to/about you, did you or your husband ask him to leave? Really. This is ridiculous, you are cowering in your own home afraid to ask him to move on, and he is not even paying rent! Obviously being a very nasty person is working well for him, as he now has intimidated the both of you.
I think your husband is being very weedy too, I hope my husband would march in there immediately and tell him to do one if I was upset by a man living (as a favour) in our house.
Get him out immediately, or at least, write him a note and post it in asking him formally to leave the property say in three days time. If he doesn't, then you may have to get a solicitor's letter/call the police (I have done this).
Don't be put off by an escalation of his illness, he's managed for 25 years without living with you and he'll have to manage again, plus I would bet that he's not nearly as bad as he's making out, but even if it is, he need professional help and somewhere else to live and to get out of your lives.
I am quite incredulous you would put up with this really.