Hi Redtailgal, reading your post was heart-breaking but left me with huge respect for you. I agree that your nephew is the important person in this story because he is the one you can help. Is it really true that there is nothing you can do to legally to make your guardianship nephew legal and permanent? His father will have multiple DUIs, be homeless and has provided an unsuitable home in the past. His threat to put his son into the foster system is further proof that he is an unfit parent.
Please gather every bit of evidence you can, including diarising all incidents, so you will have ammunition if he tries to take the child from you in the future. However I agree with Lulu; his concern will be with his addiction, and his threats will be empty. This won't stop you and your nephew being held to ransom by every threat from him in the future though, so gaining permanent guardianship over N, seems to be the ideal outcome.
Best wishes for the struggle ahead; you sound like an amazing woman. Your nephew is very lucky to have you around.