I can really, really relate to your story. I am the husband in a blended family. See my post here for some background:
http://www.growthtrac.com/boards/viewtopic.php?f=3&t=1542&p=9315&hilit=+inappropriate#p9315I will be honest and say that when I married my current wife, I was a fence-sitter/enabler/peacekeeper. Those are not good attributes to have. I thought that I could make my kids happy and my wife happy. Also, perhaps I felt bad for my kids because their mother was abusive and they had been through some tough times. In addition, I received some bad advice from a Christian counselor and a pastor. I am not blaming them -- I am responsible for my own sins -- but they just reinforced a bad situation.
About three years ago, in late 2005, my wife and I sat down with a different Christian counselor. He really set me straight that, after God, my primary relationship is with my wife. With God's tremendous help, I began a conscious effort to make changes in my life (which still continue). I had to make it clear to my oldest son that his behavior was sinful, that he was not honoring God or parents, and that if it continued there would be consequences. I had to put him in a residential facility and, when he turned 18 and left, I had to tell him that he is not welcome in our home unless and until he repents and makes at least some effort to reconcile with us. We still do not have a relationship.
I am not sure what advice to give you except that you have to keep communicating with your husband in a loving and caring way, and not come across as if you are attacking his kids. Instead, you could try communicating that all sins are ultimately offenses against God, and this his support of his daughter means that he is condoning her sinful behavior. You really, really need some couples counseling to sort out the blended family issues that have probably been lingering for seven years. He needs to show some tough love, but he may have trouble hearing that from you. It may come across more clearly from a counselor.
One other thought -- it is implied in your post that your kid is the responsible, good kid, and his kid is the irresponsible child who is living in sin. Now I realize that this might be 100% factual, but try to avoid the temptation of comparing "your" kids to "his" kids, and instead try to see them all as children who belong to both of you. they are all God's children. I am not saying you are doing anything wrong, but it is more a matter of how things are communicated between you.
Who mentioned the D word -- you or him?
Above all else, keep praying.
May the God of endurance and encouragement grant you to live in such harmony with one another, in accord with Christ Jesus, that together you may with one voice glorify the God and Father of our Lord Jesus Christ.
Romans 15:5-6