I am really sorry to hear that Rob...that is so sad
I am no expert by any means on diseases and I would only be guessing, as there are so many fish diseases with similar symptoms. It did sound like Dropsy to me and it can be brought on by many different things....diet, water quality, constipation, swim bladder problems, tumours, virus, parasite, bacteria etc.
These links may help if you haven't already seen them.
and this thread lists some sites that has info. on most diseases.
Re: the freeze dried bloodworms, I think a small amount twice a week is Ok..just soak them first in a bit of tank water so the worms expand with the moisture first. I prefer feeding frozen bloodworms to freeze dried myself, but that is just my preference.