Need a few tips!

To cut a long story short, I fancied a guy in my year when I was in Year 11 and he fancied me cos he gave me his number. After GCSE's we both went to different colleges and we lost touch. Now we're both in our first year of university and still living in London and in September I got in touch with him after a couple of years. I had spoken to him during that time but I had never seen him face to face. We would speak on MSN and once he said that when he looks back in retrospect, he wished that we got together. Anyway, we started meeting up a couple of times for the cinema and drinks and he said it felt 'strange' to be so close to me cos he has a girlfriend. I respected the fact that he was attached so I started seeing him as a friend, occasionally meeting up with him after clubbing to go to his house and watch old BBC comedies. We slept in the same bed but nothing ever happened except for a few hugs. Now I've been seeing him like that since September and I'm feeling quite drawn to him and I feel he likes me more than a friend too because he invites me over more frequently and he gives me long eye contact as if to say 'I love you' and it makes me feel weak in the knees. Basically I fancy the PANTS off him and I think he fancies me as much as well. I spent Christmas Eve and Christmas morning with him and for the first time, he initiated a bit of sexual contact such as stimulating me and asking me to do the same but we didn't have sex. Now the question is, do I carry on seeing him like this even though he has a girlfriend (apparently, dunno if they're still going out as he never chats about her and his friends never bring her up) or should I talk to him and ask him where I stand? I'm a bit scared of bringing this subject up as I don't want to scare him off. We have so much romantic/sexual chemistry between us and we're such good friends that it seems perfect if we had a proper relationship. He kisses my hands/feet/shoulders a lot and calls me by petnames and teases me sometimes which are classic signs of wanting to get close to someone so I know that he feels something for me. He also said that he can imagine me to be a mother in a couple of years time and always says having children is his main goal in life :crazyeyes I think that kinda hints something lol
I always hear the voice at the back of my head saying that he said he wished we had got together back in Yr 11 and I don't want to miss another chance.. How can I bring the subject of a relationship about? Or would it be natural to just progress into one? What about his girlfriend?

Any honest advice would be great!