Sputnik
You are not being too sensitive at all. He has you now where he wants you i.e. cowering in fear of his next outburst.
re your comment:-
" DH not abusive. He is irritable at times and I find myself wary. Most times he is not irritable. I really love him".
Why do you think that your DH is not abusive?. Or is it preferable for you to think that he is not. You may love him but your love for him may really be an unhealthy co-dependency. His actions are not the actions of a loving man. Do you feel responsible for his moods and behaviours?. Do you think on some level that if you "behaved better" towards him he would not be this way towards you or your wider family?.
"Leaving because he is grumpy seems way over the top. Staying like this seems like the thin edge."
He is not just being grumpy here is he; he is likely not all sweetness and light to those in the outside world either. He is using his moods to control you all.
Its not the only poor example of behaviour you have given us. You have described his unpredictability as leaving you drained, you're frightened of him saying awful stuff at family functions and are desparately trying to avoid a tense household where you walk on eggshells (also known as living in fear) and being a doormat.
"Here is an example. We were watching a panel show, having a glass of wine, kids asleep. Was all very nice. Then DH says "He did a very sweet family matters bit in the Guardian. You know he was married to Caroline Quentin." And I said "Benedict Cumberbatch?" And he just turned and snapped "No, not fucking Benedict Cumberbatch! Paul Merton! The one that was on the screen for fucking five minutes".
I just walked out. Is that couple banter? That seems awful to me".
It is awful and its not healthy couples banter at all, its not even banter. There was no need for him to swear twice either, its an over the top reaction on his part. BTW are both his parents of a similar nature, they likely are.