Are you eating enough calories per day? When you decrease your diet your basal (resting) metabolism decreases as well. Its unfortuante, but thats what happens. Are you exercising? One bout of 20 min exercise should keep your bg down for ~ 8 hours.

Just make sure you are eating enough food otherwise you WILL NOT lose weight. You can do this by adding more fat into your diet. What are your % of CHO PRO and FAT that you are eating?

If you are not sure give me a typical meal and I can calculate that for you. Because if you are dropping your carbs to less than the the normal 60% ot your total daily intake you need to make it up somewhere else.

You have done an amazing job with controlling your bg levels. I myself find it extrememly hard to stay in control and my last A1C was 8.2. I nearly fell off the chair as this is the highest its ever been.

And a note on insulin...insulin is a growth hormone so it does promoet growth ie weight gain. But also many of the meds taken my T2's also make it extrememly hard to lose wieght....its a double edge sword. Decreasing your weight will make your bg drop however you need meds to have a normal bg level but they wont you lose weight. My mom is going through the same thing..she finds it very frusterating.