He's not going to be able to terminate his parental rights if there is no one else stepping in such as a step-father adopting...
In regards to telling the kids, there isn't any need to. If he doesn't take them for visitation then you deal with that issue but in no way do you discuss with them that he wants to terminate his parental rights.
As far as his family goes f@ck them, I would simply send a copy of the paternity test and a note telling them they are welcome to see the children if and when they are able to communicate that request with you. If they aren't willing to acknowledge the kids as part of their family there is nothing you can do to MAKE them...and your NOT a part of their family so you need to let that go.
Is there a reason why you wouldn't want your STBX to be involved in your daughters lives outside of him not being the biological father?