Wow, Hellbilly, what has happened to you and your church family is unfortunate. I can tell you though, that prayer will heal everything. God knows what's going on and He will find a way for you to regroup and come together. From what I gather, I'm guessing your church is fairly small (like mine) with less than 200 regular attendees? We average around 100-150 each Sunday. I can tell you this because I know you'll take it the right way, unless your church family is lead by the Bible there will be division. Now that said, often times when a pastor comes in and begins this, there are people who don't like it because they are used to pastors preaching to their life and changing what the Bible says to fit their needs. I once was a part of a church like that- we never joined, but it was while my wife and I were first starting out away form our hometowns. The pastor was great and really did a good job, but he NEVER covered the serious points in the Bible. Every Sunday, we left there with a "feel good" happy feeling, but sometimes you need conviction in your life to make you realize, hey, I've been doing things my way and not allowing God to work in my life.
About your friend and his testimony- everyone's past is their testimony. It just sounds like your friend's is more interesting than most. God does NOT care what your friend did 10+ years ago (as long as he has been saved and asked for forgiveness- which I'm sure he did many times). God has already forgotten about that. What is important is your friend is walking with Christ now and more importantly he is a pastor and leading others to Christ! That's awesome! We have a guy in my church who is our youth minister and he used to be an atheist. He is a walking, talking, living miracle of God's blessing of salvation!
About the Deacons. Yes, I agree with you, it was wrong of them to pass judgement, however... Deacons do have to be careful at how they select and don't select. I don't know your friend personally, but from what you have told me it sounds like he would make a fine deacon.
I know this might be hard to take, but from what I'm gathering it might have been the best thing for your church to separate. I can't imagine a church where they do not want to raise children up in God's house to become Christians. To me, that's selfish.
Good luck to you Hellbilly- remember don't get caught up in the mix of all this, do what's right, follow God's people and be someone strong others can depend on. And lastly, remember to pray about the next step!!