Lots of great replies, thanks everyone, can't get to everyone individually so I'll just lay out some answers.
Yes. rhythmically he is terrible and off time. I just can't put up with it anymore. I pride myself on playing tight, practicing to a metronome and understanding how to play in complex time signatures, and he can't even play in 4/4. Sometimes I won't change my speed to match his when he starts fluctuating just to prove a point that he's playing way off time, but he won't even notice we're off time. I've tried explaining to him the fundamentals of rhythm over and over, showed him how to play to a metronome. He just doesn't get it. Worse, he doesn't want to get it and feels like it's unnecessary. Unfortunate, because otherwise he's a pretty skilled guitarist.
Yes, we have messed around with covers. Same story. He can't keep a consistent rhythm or stay on time. And yes, he doesn't even notice it.
Yes, his songs are just a bunch of shit piled together with not much structure at all. The riffs sound nice, but they aren't structured right. And yes, he uses the creativity excuse to cover up his lack of knowledge of the subject.
Yes, he's one of my closest friends which makes it impossible for me to just break all ties. The thing is, other than rhythm he's an extremely skilled guitarist. It's just beyond frustrating as a drummer when I pride myself with playing tight and theoretically sound. I don't want to leave my band because he's such a great friend - this band is his life, and I know he won't find another drummer. But I just don't have interest in playing in it anymore, and I'm afraid this constant stubborn environment will put me into bad habits of playing.
I don't know what I should do.