J., being a step mom is hard. I am an ex step mom to a 19 year old young lady and a 15 year old boy. He went through the same type of think around 12 or so. I still talk to my step kids on an almost daily basis and my step daughter lives with my mom. Strange situation I know.
Your son sounds like a wonderful boy with some issues that he is unsure how to handle. Even though he is ten, kids at that age don't have the capacity to really reason out their problems like adults, even though sometimes we wish they could.
I agree with Drama Mama, as a family should seek counseling and if your son is ok with individual counseling he should do that too. Make sure that the counselor knows that one of the issues that needs to be addressed is his biological mom. Sibling rivalry will happen and if both of the boys deal with the rivalry in a healthy manner, it will hopefully bring them closer.
PLEASE don't ship him off to a military school, that will prove nothing and you will end up with a monster. Not that you would, but just the suggestion of it is horrible. The only thing that military school will do is give you a break from having to parent him for a couple of years, it will not make him a "better" man. Just a thought.
I would also stop letting him pick his punishments. That is just one more control tactic he is using against you. He knows you are not going to follow through with those punishments. You need to set clear rules with him and stick to them. Both you and your husband need to be a united front on the discipline.
It is the nature of kids to defy their parents.
You are the parents, and no matter how hard it is, you need to be the one to decide what is good for them. We all want our kids to be strong, independant, self reliant, compassionate young adults. All of these things come from strong, nurturing parents. Sadly, if you let him do this now, you may end up losing control when he is in his teens.
My prayers are with you and your family. Hang in there.