latasand,
Sorry to hear of your husband's difficulties...Yes, the MEB will have to be forwarded to the PEB at Walter Reed Medical Center in Washington. The PEB will determine fitness (that is whether your husband can stay in or not and if not, with what benefits). The next step is to make sure the MEB is accurate. Your husband should take a hard look at what he wants for an outcome and then prepare accordingly. A very important factor for a 40% rating (30% is what gets him a retirement finding) is whether or not the diabetes causes regulation of activities (which has been interpreted by the courts to mean avoidance of strenuous occupational and recreational activities). If this is not clearly documented, your husband will not get above 20% (though, they need to also consider if he should be rated for eye injury or other residuals).
They may be waiting on the Commander's letter. After the MEB is complete, it is very important to review it and to see if he should request an impartial review and/or submit a rebuttal.
Best of luck!