The first thing I want to say TGB is that you are not a failure and neither is your wife.
For years you have done all that you can to support your son and be there for your GC, with it seems no appreciation. So, your youngest GS was going to bed at 7.30 as stipulated by your son, and your wife was settling him by reading with/too him and singing; sounds lovely.
Your son not being happy with this arrangement insisted that she stop doing this which has resulted in him not going off to sleep for sometime, and when he was told a massive row ensued and he's now said you can't have the boys to stay over.
Has he said that you cannot see them at all, or is he still prepared for you to be an unpaid taxi service and 'the bank of mum and dad'?
He's being totally unreasonable and as is sometimes the case, not considering what's best for his children who as you say, will be devastated at no longer being able to stay over with you and your wife.
This is such a difficult situation as understandably you want to be there for your GC's emotional and financial support. Maybe you could consider not lending any money in the future, but continue to buy the children's school uniforms and paying for
school activities and taking the children on holiday, as not doing so would directly impact on them.
Try and take a step back and not always be able to change your own plans to suit your son. If he's not working and if you're not available, he should be as he's not having to fit child care in around work.
By being less available, together with the fact that your son is bound to miss the boys not staying over with you two nights a week, may make him realise how beneficial it is to him and the children that this arrangement resumes.
I hope it does because there's nothing you can do unless he changes his mind. If you're able to see the children apart from them staying over, I suggest that you don't mention them staying to your son, making the most of the time you do get to spend with them.
Of course parents have rules and routines that they want GP's to follow but for me, these should be discussed and not issued as orders, especially when the GP's have been entrusted with the care of their GC as much and for as long as you have.
Withdrawing the children even in part is unreasonable and cruel. If the youngest has not had an epileptic seizure for more than 4 years, there's nothing to support your son's suggestion that the bedtime routine your wife's established with him is likely to be harmful.