I'm going to try not to go off on your ex here, but it's going to take some effort! I honestly, really, don't at all see his reasoning. After a lot of very long and very fraught decisions with my now husband, I hyphenated my last name--I wanted to keep my name, he wanted me to take his, and we compromised. Neither of us thinks it's ideal, but we love each other and compromise is part of marriage. That being said, our DD has my (maiden) last name as her second middle name, and his last name as her last name. I DO NOT GET why it's a problem to have a last name as a middle name, but I'm a bit biased here--at birth, I was given my mother's maiden name as my middle name, so have always had "Wickins" as a middle name. I've been proud that my name represents BOTH sides of my family. Of course, that means I now have THREE last names, which is a bit long, but I still find ALL aspects of my family important, and want them all represented. My sister has my grandmother's maiden name (McCoy)as her middle name--so it seems totally normal to me to have a last name as a middle name, for either a boy or a girl.
On top of all of this, of course, if the baby is going to live with you, and you're not married to the Dad, I would think that the easiest and least "identity crisis causing" option would be to give the baby YOUR last name, since then he/she would have the same name as everyone s/he lives with. Maybe your ex being completely unreasonable is part of why you're better off without him?