HI there.
Glad you posted, but sorry you had to. by the way, appreciate your mom. Any mother who would retire to move in and care for two very difficult grandchildren is a diamond. I don't know if I could do that anymore.
Do you and your current hub have any psychiatric problems or substance abuse on either side of the family tree?
This is my Mom Gut opinion.
Your ex probably got psychotic on those medications because he has a mood disorder. I have bipolar. You have to REALLY be careful with the medications. They CAN make somebody with a mood disorder psychotic. I don't believe he has atypical panic disorder and never even heard of it. I have actually (check below) a whole bunch of diagnoses which really are one big diagnostic umbrella called Mood Disorder Spectrum. That includes the moodswings, the anxiety, the Obsessive Compulsive Disorder (OCD) thoughts, the panic attacks, the whole nine yards. ADHD medications of any kinds and antidepressants can be VERRRRRRRRY dangerous for people with mood disorder syndrome. They can cause hallucinations, violence, psychosis. About your kids:
I'll skip to difficult child 2. Although your ex isn't his father, your son doesn't sound that different from difficult child 1. It sounds like he is hallucinating. IF it were me, I would go for another opinion. If he sees the statues jumping around, unless they are really jumping around, he needs an anti-psychotic. I'm taking a layperson's guess that he has some psychiatric illiness--like you said, bipolar could be it. But I'd get him on good medications now rather than waiting for him to get worse. I have read that bipolar cycling gets worse if it isn't controlled. Mood stabilizers are usually the first line medication--they include Lithium, Lamictal, Depakote, Tegretal and Trileptal. Often anti-psychotics are given with them. Sometimes they are used in place of a mood stabilizer. Nothing I've heard from anyone in my Mood Disorders Support Group has convinced me that antipsychotics make good mood stabilizers by themselves, however that doesn't stop doctors form using them that way. You have to get a good psychiatrist and see what works. Lots of trial and error.
Skipping back up to difficult child 1, my layperson's guess is that he probably has a mood disorder as well and is at risk for psychosis. I would be leery of any ADHD medication included Straterra, which is an antidepressant, and any antidepressant, such as Zoloft (wich made ME nuts), Prozac (horrible for me), any at all. I'd make him try a mood stabilizer first. OF course, I'm me and you're you and you have to find someone you trust and go with what he says. But never be afraid to question or say "no." Any and all medications CAN and OFTEN DO cause cognitive dulling so it is not uncommon for kids to start to do worse in school and not to be able to understand as well or as quickly. I was so dulled by mood stabilizers that I personally won't take them, so you have a dilemma. I don't have the type of bipolar though that causes psychosis and I mainly got depressed, not manic. I'm doing ok on other medications. All bipolar is different--there are actually four different types. They aren't treated the same.
There very well be some Pervasive Developmental Disorder (PDD) mixed in. Pervasive Developmental Disorder (PDD) and mood disorders run in the same families. However, to me (and I have a son with Autism Spectrum Disorders (ASD)), it sounds more mood disorder-ish than Autism Spectrum Disorders (ASD), although one can have both.
Now that you have my layman's opinion, I'd take both for fresh evaluation. I think I'd go with both a neuropsychologist evaluation and a very very highly recommended child's psychiatrist (they are not all created equal).
I wish you lots of luck, whatever you decide, and I hope you post again. Feel free to disagree with everything I said