That is such a late bedtime. But that aside...your kids bio dad is not in the picture, and their step dad is a bully and treats them different to his biological child. Sorry to be harsh, but I think you need to take off the rose coloured glasses and realise that the fact he spends time with them doesn't make up for this behaviour.
Your poor kids. It's time to take serious action. He needs to cut it out or you need to leave, for the sake of your kids.