Nervous dog...at the end of my rope...

Hi! I'm new to the forum, but I think I might be able to help you out with an experience I had with my own previous dogs (ironically I've owned both a Skiddish dog and a Lhasa Apso mix, but never both at the same time).

--Short answer--
1. Gently socialize your dog as much as possible with other dogs and people. Make it a personal mission. At 16 months there is still some (but very little) time to correct skiddishness, but it's going to be very difficult. You will need to take him to dog parks, friends houses, dog dates with other dog lovers, and long walks to fun places. You'll need to do this in controlled, gentle environments. You don't want to traumatize your dog, just expose him to new and exciting friends. The easiest way to get this started is by dog dates. Setup a controlled time and place to bring your dog to a meet and greet with a friend's dog and family. And then schedule another one. And another.

I'm not going to lie to you - it's a trying process. With my dog, K.D., it took us years to impact her naturally skiddish and fearful nature. The important point is to arrange social situations but never force them. Eventually, the dog will be more used to them.

2. On barking, the answer here is Crate Training. Despite what some people think, it is a godsend for the dog. And it provides a safe place. Generally, dogs that bark excessively do so because they feel the need to patrol or alert the pack because they don't have a place to call their home. You need to make sure to establish that place.

In the case that you dog is already crate trained, I would suggest doing something more passive - like setting up black-out blinds or blocking vision from external influences when the dog is in the crate.

--Background--
My German Shepherd, whom I loved with all my heart, was the most skiddish dog I've ever seen. She used to run from her own shadow - literally. It made my entire family very sad. This was only worsened that, like your own dog, she would bark loudly and fiercly at anything that past by. It was terrifying. We eventually got to the point that we had to give her medication, but it didn't do much good. The only thing that eventually worked was too expose her to more and more friends. Eventually, she started to trust people and dogs more. She never became captain social, but she was much more balanced toward the end of her life. I hope the same will happen for your dog as well.

Disclaimer: I am not a dog trainer and I'm sure there are vastly superior experts on this forum. Make sure you consult others, because I'm just a laymen. I just know what worked for me. Best of luck!

Crating MIGHT work, as you say he's better when you have him sleep in the bathroom. BUT, I am afraid that you can't, nor should you, stop the "first bark". I understand what you mean about it being very shrill, and startling, and irritating to your boyfriend. BUT, look at it from your dog's perspective....something either startled your dog or just alerted your dog. He is waking up out of a deep sleep, just as you are, to hear something that he wants to let you know about. It's part of a dog's "job" to let their human know when something or someone is on or near the property. He hears it, and he lets you know. Be lucky that he responds to you asking him to shhhh; not all dogs respond.

The desensitizing to noises might work, but as I say, if something wakes him up in the night, it would be hard to stop him from letting you know by barking....