Sounds like the friend is costing you more than your kids. I would kick him out of the bedroom to the livingroom couch and give the boys and girls their own rooms back. Law or no, my family gets better treatment than a deadbeat dude, no matter how much of a friend.
I also have all entertainment stuff plugged into an outlet strip, so you have to turn it on before you can play, it might help to deter the friend, specially if you make a house rule of paying for use. Might not, but it can't hurt. (use the saved money for something fun). Also we sold two of our computers, got the money for them and now we cannot have that many running at one time. (yes we are computer geeks we still have 3
.)
On the Smoking, I know quitting can be hard, specially if he works around smoke. You might ask if he can cut back a little, and let him use that money for lunches for himself. That way it is all reward not all work, not gonna help the budget this year, but might next year.
Oh and what an obnoxious landlord!