PIP & Council housing list - can't get house despite partner having Emphysema

Hi, I've just joined, & was desperately hoping for some advice, regarding our entitlement to housing, please?

We currently live in a third floor flat, which is a badly, converted Georgian? property, with large single glazed windows, damp, & a shower that's so small we can no longer use it, due to physical pain & fatigue.

We've recently been in touch with our Council, & despite our health, & benefits, we've been told we're only eligible for a 1 bedroom ground floor flat, which is not appropriate.

My partners' Emphysema has been getting worse, & despite my own health problems, I unofficially do a lot to care for him, so having 2 bedrooms would really help, as his Son & partner, who are willing to provide some respite care, would be able to come & stay - which they can't currently do, as our 1 bed flat is too small. 

Also, my partner struggles to get out, as he gets so fatigued/breathless from going up & down so many stairs - this has led to his Depression & anxiety increasing, which has left him very isolated & trapped - I too have this, but to a lesser extent.

We've been living with a variety of anti social neighbours, in flats, all our lives! (Both seperately, & together, since my partner moved in with me, last summer) & we are still living with one now, so we definitely don't want to go through the physical, mental, & financial cost of moving into a 1 bed flat, & potentially end up with more anti social neighbours above us, & possibly each side too!

Btw, I'm 46, & partner's 55.
Both my partner & myself, get Cont Based ESA, & are in Support Group - we both have physical diseases, & mental health issues.

My partner receives Pip, for both parts, at the lower rate, & I've been advised that I should claim Pip also, & will likely get it, too.

We have no debt, currently pay part of our rent, & Council Tax by DD, & have found out roughly how much more we'd have to pay towards a house, & know we can afford this.

One of our nice neighbours, has just been moved from a ground floor flat, in our small block of 6 flats, to a 3 - 4 year old 1 bed house, with garden, & private parking - he's working, & not in receipt of benefits, & only moved about 2 months ago, through the Council ( & the Housing Assoc we both are tenants with) after he had a letter from his GP stating that the anti social neighbour, was putting his health at risk.

His rent is only about £5 more expensive, a wk, & he's got a warm, efficient, double glazed house!

When I brought this up, on phone call to Council, & asked why he could get 1 bed house, & we can't, the man from the Council confirmed that this was because he was working, & we're not! Is this discrimination?

Is this legal?

Btw, the neighbour, whose got the 1 bed house, is around the same age as my partner.
I apologise for the length of this - I suffer with OCD, & struggle to express myself more simply...
Can anyone give me some advice, please?

We desperately need to move, but cannot move to another flat - any advice would be very much appreciated, Many Thanks