HELP WITH SPOUSAL VISA APPLICATION

Been reading through the forums and all the contributions, please can any one help me with this.
I am 31yrs old Nigerian married to my british partner and we have 2kids, one is 3 and the second is just 9mnths old, i came here in 2005 illegally, meet my wife in 2006 and we started a relationship, we started living together in 2007 till date. Got married in may 2010 after applying for COA, now am about to make an FLR(M) application but i have been advised to just go back home and make an entry clearance proper, my wife has a full time job never been on benefit, just the regular tax credits, we have a privately rented 2 bedroom apartment and since both kids are girls we have adequate accomodation..My fears are:
1. On my wifes bank statements its on the overdratf but from the calculation we meet the requirments for maintainace exept its on overdraft from a long time
2.when i did apply for my COA my passport was never sent back to me, called them last week to inquire as to how to get it, now i was sent a questionaire to state how i came into this country and send back b4 27th sept am scared i might be issued with a removal notice
3.I have a child hood friend here who is willing to give all documentation for 3rd party support but was told that wont help.
4.I have got proofs of adresse for both of us together spanning over 3years, Bank statements, family and wedding pictures and lots lots of documentation, my children are all british citizens.
Been told i might be refused might have to re appeal,which am scarred of, cos wouldnt want to be that long away from my family, it would be hell for my wife to manage alone with 2kids, i have Degree in Engineering so am able to get wot ever kind of job once am back we intend to live together as a family unit like we have always been.
Am scared of going back and getting stucked in Nigeria, been advised that if i make the application here since its a discretion application it might take more than 1year or more i dont want to wait that long anymoore i just want to regularise myself please could anyone help me with any positive informations as to wot to do am about to buy my ticket. Never been involved with the authority never had any criminal convictions or so,never claimed any public money.
HELP Please

Did you read this

http://www.immigrationboards.com/viewtopic.php?t=50920

This proves the only way to regularise your status is to return home and apply for a spousal visa

It can take a very long time to get Discretionary Leave to Remain

Just like mochyn said my brother, the best way would be to go home and apply, my best mate is leaving tomorrow to apply in Abuja after getting married last month and I know few guys who already returned to Nigeria and they are back.

There is nothing in your post that sound like a 320(11) issue. Tell them you want to return home, so they can return your passport, it might be given to you at the airport when you are leaving

I wish you the best

drills2010, how did you enter the country illegally? Did you use false papers or anything like that? Have you claimed benefits whilst in the UK?

If you are concerned about the maintenance issue, have you investigated what jobs you would be able to apply for once you get back to the UK? It's useful to be able to show what your realistic chances are of finding a job, and evidence of job-hunting is a good start. Can you get a job offer subject to your obtaining immigration clearance?