Diabetic pomeranian developed paw pad and face skin lesions! What's happening?

[AKB]

Hi all, need some advice as I'm at my wits end about this.
Pictures first of the skin thing: http://s31.photobucket.com/user/Kuro...0skin%20issues

In Mid May: My 8 year old Pomeranian was diagnosed with diabetes. He was frequently urinating, excessive drinking, and had a blood glucose level around 22 mmol when it should have been around 7. The vet put him on Insulin injections - 3units, x2 a day with his meals (9am and 9pm), his glucose curves are getting better, but his low is around 4mmol mid-day and high around 20mmol before meals.

However, the following issues had occurred:
- His weight shot down to 4.4kg from 6.5kg AFTER starting Insulin and it's been declining ever since.
- End of June, his paws suddenly became swollen, cracked between the pads and red, with the black skin peeling off and he won't walk now (see pictures). Went back to vet, he said it was an infection and put him on clavaseptin (pill antibotic) and topagen (spray onto his feet anti biotic). But Ozzy has gotten sicker, his paws worse, and the anti biotics did nothing. It's been a month now and Ozzy's paws aren't getting better. We are keeping socks on him (rotating with new socks daily) so he can't lick, and applying polysporin once a day.
- The skin irritation is now on the sides of his nose and the inner area of one eye.
- He is eating and drinking fine and no vomiting. Stools are normal shape.

Any ideas what is going on?? Is this normal for diabetics? What about the weightloss? If autoimmune, what could it be? We took him to a new vet today and we will be having a biopsy done, and more blood work, but wanted suggestions about what this looks like.

One Vet suggests biopsy, the other vet suggests an ultrasound to check for cancer/tumors. What should I do?

[rhynes]

Has the dog been diagnosed type 1 or 2? Meaning pancreatic failure or diet related?

What are you feeding your dog at the moment - diet will be the big one.