My first suggestion would be to get a good book on behavioral modification. "SOS Help for Parents," by Lynn Clark is highly recommended. She gives very detailed ways to correctly use timeouts. The problem with what you are doing is that consequences need to be both immediate and consistent. A long term consequence like grounding for a week is useless because after the first day, there is no link to what is happening and what happened. Kids of this age just don't have the cognitive ability. And that is one reason why the grounding doesn't faze him. He can't make the link. When he is about 9, this will be an effective consequence.
I can't help much with the potty training. Its not the school if it started a month before. I would look back and see if there were any household changes that happened at that time. Also curious if you have had any new additions to the family in the last 12 to 18 months? This can cause a lack of attention to the older child and some of the problems you mention. I am also wondering when you take him to the bathroom at 12 and 4, how long it takes him to get back to sleep? If he doesn't fall asleep immediately, he could be sleep deprived and that will cause a lot of problems. There are a lot of studies that show kids have been falsely diagnosed with ADHD, when the problem was sleep deprivation. Just an idea.
Hope this helps a bit. Do get the book I mentioned, it will help you a lot.
Thank you for the reply. There was a really big change about 19 months ago. We had twins. I never thought that could be the problem. He did really well with them until about a month before school. As far as when we get him up in the middle of the night to go potty. It is more like sleep potty. He does not wake up until he is standing in front of the potty, and falls right back to sleep. I'm going to get the book you mentioned. Thank you for the tip.
Oh boy, twins. That is a really big change. Not too much of a problem for your son - until they started to move around (how long ago was that), and then your attention gets really diverted. I do think that is part of the problem. Try and give him some positive attention. I know it sounds weird to say give him positive attention when he is screwing up, but I do think it will help. I completely understand where you are coming from. One reason I asked the question about new additions (no, I am not physic) is due to many posts that I have seen like yours.
I am a bit concerned about the school withdrawal. See if his teachers can give you some more info here. Does he seem overly tired, doesn't go out and play? Or does he just run around by himself? If he seems really tired at school (which is different then withdrawal), you may want to get some medical advice. If he sleeps that well at night, and can't move around during the day - something is not right. Granted, it could be that the school is so stifling, that he just gives up there and then when he comes home it lets it all loose. I have seen that happen. You just might want to go and observe what is going on at school. In fact, that would be my first recommendation! The more I think about it, I highly suggest it. Please post back if you have any more questions. best wishes!