Thank you for bringing your question to Just Answer!
When trying to figure out what a man's intentions are, don't listen to his words---watch what he actually does. He's not treating you like someone he wants to marry, he's treating you more like a "friend with benefits." He's keeping you hooked by saying he wants kids, etc., but his actions tell you that there is no substance behind his words. Men learn early on what women want to hear, and if saying the right words enables them to get sex without actually having to commit, they will say almost anything a woman wants to hear.
Rather than feel rejected by him, I'd advise you to reject him, and wait for a man who shows you he wants to be with you--not sleep at his mate's house when he could be with you and your daughter.
Before getting involved in another relationship, there are two books that are must reading to help you find a man who will move the moon and stars to be with you.
The first is Temptations of the Single Girl This book should be required reading for all women before they start to date. The "temptations" are thinking that we can change a man or his behavior, settling for a man who doesn't want a commitment when we really want marriage at some point, and wasting time with the wrong man because we're afraid to be alone.
The second book is a bigger commitment. It's seven weeks of daily reading and writing and self-exploration. It will help you get clear on what you really want from life and relationships, and increase your self-esteem. Don't just read it all the way through. Do it the way it was designed--daily--and you'll be amazed at how much clearer this all seems at the end of the process. Calling In The One: 7 Weeks to Attract the Love of Your Life.
You're not going to like my answer, but I have to tell you the truth as I know it from both my professional experience and personal life--thinking that it's possible to change another person will only lead to disappointment. As you noted, he's shy by nature, grew up in a non-affectionate family. If you want a man who's a take-charge kind of guy, this is not your man. If you want someone to show you affection by time and attention rather than money, this is not your man. Could you change your desire for time and affection to valuing gifts instead if he asked you to? Of course not, these things are part of who we are. Could you change from shy to confident (or vice versa) because he asked you ? I believe you that he's a nice guy...but he's not the right nice guy for you.
Whenever you find yourself thinking about a guy that he would be great if only he would...(fill in the blanks) that's your indication that things will probably not work out.
If I had to point to one thing that characterizes most of the unhappy couples I work with in therapy, it's that one of the people thought they could change the other if they just said the right thing or loved them enough. People are who they are. Women are the biggest culprits...they think they can get him to stop drinking, be more motivated and successful. They can't. The only person you will ever be able to change is you. Other people are out of our control.
Instead of trying to fit this nice man into the shape that works for you, find a man who naturally shows his affection by time and attention. You'll be happier. It will never come naturally from this man you're dating--it will always be a struggle, and you'll always be wishing he would show love the way you need to see love. Not a fun way to live.
If you can stand one more book recommendation (and by the way, please really read the Temptations of the Single Girl book) --this one talks about the 5 love languages, which is exactly what the differences between how the two of you show affection is about: http://www.amazon.com/Love-Languages-Secret-That-Lasts/dp/0802473156/ref=sr_1_1?ie=UTF8&qid=1326879430&sr=8-1