DH's family have a tradition of passing the fathers name down as a middle name for the first born son... I don't think DH's name really goes well as a middle name but I'll let him have it for this one, it is important to him and it's not like kids get called by their middle name or anything usually.

Sounds like in your situation though there are family names on both sides that could be used. I think if neither of you can agree then you should compromise and not use either, or you could use both (not uncommon for kids to have 2 middle names). Or weigh up who it's more important to... is using your sides name just as important to you as using his is to him?