I read your OP and at first I was horrified, and that's talking as a step mum, who has had difficult times with my SC, but then I re read it and your updates and I can empathise with some of your points. The difference between you and me is that I actually wanted my SC around where it is seems quite obvious you don't.
I'm not sure if you even like your step daughter's, it's very obvious you don't love them, but that is ok. I don't love my SC as I do my own DC. I care for them, I would never want to see them in any harm, I do all the household chores etc when they're with us, I look after them when my DH is at work, and I want them in our lives. Why don't you like them? Would you rather your DH cut ties with them?
In response to some of your questions:
My SC share a bedroom at our house
I'm not sure what you can do about this if you say the children can't share bedrooms as they're not big enough. If your bedroom is bigger could you and DH not move into one of the smaller ones and then possibly with a bit of rearranging the kids can share.
We have photos of all children up in the house - mainly down to me, if it was up to DH to sort there wouldn't be any of anybody. But I don't have any photos in our bedroom . I agree with you about that.
My SC have never done parties- even with their mum. It's usually just a gift /money now they're older and we normally go out for tea.
The snacks - do what most PP have said keep the ones your son has for nursery separate. But i would just buy the fruit anyway. Have one drawer with things all the children like. When they're gone they're gone til next time.
We pay more than CSA, it's a private arrangement but still more. We contribute to extras such as uniforms, school.trips etc.
We live in same town so DH can attend assemblies parents evening etc. I appreciate your situation is different. It is a unreasonable to travel 100 miles for a 10 minute assembly. But perhaps for Christmas plays or big events you could make it a short break - stay overnight or something. You said DH has family in the kids hometown could you stay with them? There's probably a cheap Travelodge/ premier inn nearby?
As for Christmas we don't wait for SC to arrive for our DC to open their presebts - it's Christmas morning!!!! SC usually visit at some point- then will come to us at some point during the holidays depending on when DH is working.
As for holidays - for me there are 2 issues here, firstly if money is tight and there is no money available for your DH to visit his children- can you even afford a holiday? Yes I understand why should you miss out on a holiday- but you need to live within your means. Perhaps you should consider a week in UK, or couple of extended weekend breaks and then leave your DH money also to visit his children.
We have not been able to afford to go abroad for various reasons - we have just booked our first holiday for all 6 of us abroad next year in one of the half terms. We couldn't afford to go in the main summer holidays as a 6 ever !! However this does mean that SC will miss 3 days of school- they have different weeks for half term. And it looks as though this will always be the way as they're different this year too.
I would consider going away abroad without SC, and I know this is frowned upon. But I would then do something in the UK - or weekend breaks, days out etc for all 6 of us. This is always a contentious topic and I don't believe one way fits all. My SC go away every year with their mum, sometimes more than once. They have days out and treats etc - so why should my DC miss out? This is a different thread all together because she actually believes we should NEVER take our DC out with out SC.
I picked up on your comment that you would have more money if your DH did not have a gambling problem and was paying money back to his employer. Has his gambling stopped, is he seeking help? How long does he have to pay the money back for?
I get that you control finances because of your DH problem, I don't see this as you being totally in control of everything. I guess you are making sure bills are paid etc - but it doesn't mean you get go keep all the rest and just spend it on you or your DC, without a thought for your SC.
To me it sounds as though you have a lot if frustration and resentment with your DH because of this, and quite rightly it is his fault, the mistake your making is taking it out on HIS children, they seem to be suffering whilst you expect to maintain your lifestyle in a reduced income. His gambling isn't their fault- you must reassess how you deal with this. The person to lose out is your DH but not at the expense of not seeing his kids.
I think your biggest problem is your DH. He doesn't seem to do a lot for his kids - or you in fact and in turn this makes you resent his kids. They will feel this and pick up on it. So please try and change your behaviour with them for now. He doesnt seem to do a lot round the house, in fact he sounds quite lazy. Not bothered whether he sees his kids etc.
You have to decide if the relationship/ family/ blended family is what you want. Ask yourself is it all worth it? Would you be happier on your own?
Step parenting and building a blended family can be hard work and sometimes you feel you don't see any rewards / benefits but you have to want to do it and you don't sound like you want to. You haven't come across as a nice person in your OP - but I think a lot of it is down to frustration with your DH which you're blaming his kids for.