Kazzers, welcome aboard.
My first comment would be that if you read through the forum you will see you have some good company, having varied from your well-worn path. That seems to be all part of our challenge; that it's an every day, every week, every month, every year challenge, so the odd meandering off-track seems likely, at some point. Don't beat yourself up. You're doing all the right things to re-grasp your control. I can't tell from your profile if you are taking medication, or have any other conditions that might impact you, so clearly I am assuming you don't..
There's quite a bit in your post, and I'll try hard not to ask the whole tsunami of questions all at once, but forgive me if I seem to just have a big list of questions.
The cravings you are experiencing are pretty common. The carbs in sugar, bread and the like, are addictive, but sadly, they are also the things we need to focus upon.
You say, weight is creeping on. How much have you gained, and is your 8st 10lb where you would like to get back to?
Are you taking any medication?
Assuming you have a meter; How are your bloods doing? What are your fasting and averages looking like?
If you don't have a meter, I would encourage you to invest in one. It really is the way to achieve immediate feedback from your own body. If you need to buy a meter, let us know and we'll point you in the right direction to do that cost-effectively.
Regarding a lower carb diet? I would urge you to give it a try. By reducing the carbs you eat you will be challenging your diabetes in the most direct way I know of. How much you need to adjust your fat intake is a very personal thing. When I reduced carbs, I didn't increase my fat intake for quite some time. I wanted to lose a bit of weight, and did, quickly, but eventually I have had to notch up my protein (less so) and my fats to halt weight loss. In doing so, my cholesterol improved. And importantly, my cholesterol breakdown is significantly improved. This cholesterol improvement is very, very common. It varies from person to person, but we would expect that?
Unless you have other underlying medical conditions; in particular cardio-vascular disease, then personally, I feel you have little to lose by giving it a whirl. If you try it, and you buck the trend of the majority of people's findings on here, and your cholesterol inches up to a level you are unhappy about, you can re-think, and take further advice. But, I would be confident your bloods would stay or come into line, and most people do lose weight.
Apologies again for all the questions, but the context really does help.