It's sort of fun to be able to say, in the style of family counselors, "You're both right."
First off, yes, bluegrass banjo is played with finger picks. I'm surprised your instructional aides hadn't mentioned that. It makes all the difference when trying to reproduce the sound of our hero, Earl Scruggs, or any other bluegrass banjo picking. Of course, the banjo can sound good with the picks off, but it's not "the" sound. So except when you're purposely trying to be quiet (so as not to wake someone in the next room, for instance), always use the picks when practicing, jamming, etc.
As an aside, any time you find out that a teacher or book or video leaves out such important info, it might make you question that information source overall, and look elsewhere.
Regarding the annoying clicking sound, that can indeed be jarring, and it's due to your not being used to the picks. Your finger motion is based on what has worked best without picks, and your fingers need to do some adapting. That will happen quite naturally in time, and your sound will clean up. It especially helps if you are aware of, and bothered by, the pick noise. Your wish to hear a cleaner sound will cause you to make slight adaptations in the way you pick, until the desired cleaner sound starts happening. Sounds mysterious, but that is actually the way people tend to solve problems of pick noise!
Now about your advice to your husband to quiet down: Not withstanding the above information and suggestions, yes, you are right to take the position that when playing with other musicians, everyone needs to be sensitive to volume. That means that when someone is playing a solo "too quiet", you should quiet down. My rule of thumb, and I think this is generally accepted, is, "If you can't hear the other person soloing, quiet down until you can." It's not inappropriate to encourage the other person to play louder, but until they can, the others need to adapt. In your two-person situation, I think this would apply.
It's funny, 99% of the time, it's usually the banjo player who needs to be told to quiet down. Often, banjo players don't realize how loud they are, because the banjo sounds much quieter to the ears of the player than to someone on the other side (in front) of it. One day you might find yourself having the opposite problem to what you have now!
Last note, husbands and wives playing together has its own special rewards and challenges. Unlike most musical situations, there are fewer inhibitions to being critical of one another, so it's possible that more critical things may be said in the course of playing together. Even if well-intentioned, this criticism can eventually de-rail the general fun of music-making, so it's important that the partners be as considerate and reinforcing to each other as they would be to other musicians. If you can make good music together and keep growing in the situation, there are wonderful rewards to be had, but it can be a challenge even for happily married couples. I'm really glad that Joan and I have, over the years, developed a good musical relationship. Like any relationship, it takes work, but it's well worth it.
Don't let the obstacles get in the way of having a great time jamming with your husband!