FIrst of all, CONGRATULATIONS!
It sounds like your instincts are right. My children always fell asleep nursing and stopped when they were ready. I believe in nursing on demand and at your baby's age you do not need to worry about him falling asleep at the breast. You are right in that he's missing another opportunity at your breast and your milk supply will suffer if you're not also pumping at night while he's taking a bottle. Not eating from you over night will also make ovulation return faster so make sure you have a back up birth control when the time comes to take up "marital relations" again. This would be my concern in your situation: feeding on demand (even overnight) is baby's way of making sure your milk is adequate for him. This will help you make more milk during growth spurts when he needs it (and he'll tell your body by nursing a lot more!). When you don't feed him at all at night (yet he's still waking to eat) you are telling your body not to make milk at night and that WILL affect supply.
I personally am not a fan of the Baby Whisperer, but I don't think it's harmful for babies to fall asleep while nursing. After he's several months old, you can revisit (if you'd like) and work on that. I never worried about putting my babies in the bed slightly awake. They always nursed to sleep at night. THere were plenty of times that they fell asleep on their own as well. My older two children have no problems falling asleep, so all those times they fell asleep at the breast did not negatively affect them.
The breast is also soothing, and there's nothing wrong with that! God made it soothing for a reason. That's also why manufacturers have made bottle nipples and pacifiers to resemble the shape and feel (though they haven't quite got it, have they?) of a mother's nipple - because nature has given us the very best "bottle" and the very best "pacifier" there is. I don't think God would have made it so comforting if it wasn't ok to do so, KWIM? My babies found a lot of comfort at the breast as well as nutrition, and I think that was the best way for us.
The decision is yours, but from someone who let her babies fall asleep that way I can tell you that they eventually stop when they're ready. I don't think Baby has gained all his weight back because of the bottle. It's the breastmilk he's drinking! ANd it's completely normal for baby's active time to be at night. In the womb, when you were asleep, that's when he played. During the day your movements lulled and rocked him to sleep. He will grow out of this - especially with swaddling!!!
Good luck! As I said, I am not a fan of that book (I especially detested her Toddler Whisperer which stated that nursing a toddler was for the mom alone, who couldn't give it up...whatever!). I always recommend The Happiest Baby on the Block by Dr. Harvey Karp. I believe he has a much better understanding of the way babies work. Having that understanding allows you to do what you feel is right without worrying if you are "spoiling" an infant (which I think is crazy! how can you spoil a baby?!?) MILs do give a lot of unsolicited advice and you don't have to listen to all of it! It sounds like your doubts are telling you what is right.