Yes, butter is an excellent choice for diabetics because it does not trigger any insulin response and does not raise blood glucose levels. Providing your body copes well with dairy, you can eat as much as you like.
Yes, cook with it and smear it, much better than that one step away from plastic margarine. Just a slight observation that your LDL cholesterol may go up (The majority tend not to), if so ensure you are provided with Total Cholestorol, HDL, LDL, Triglycerides and Triglyceride to HDL ratio.
We use a reasonable amount of butter and coconut oil but I note that Zoe Harcombe does not fully endorse excessive amounts, so I keep this at the back of my mind.