Wow - that email is intense.
I shared this experience in a different thread....but I thought I'd share it again in this thread, because
My T gave me the same kind of ultimatum.....but not in writing.
She made me promise to give my SI tool either to her or my H.
And she said that outpatient therapy is the lowest level of treatment and I have to be stable to be able to continue with her. The implication was that SI behavior means I am not stable.
She did not blatantly threaten termination, but to me the inference was clear.
At our next session, she did not inquire whether I did indeed surrender the SI tool, and she did not ask me if I had SI'd again.

But the truth is, what she said has been a good motivator for me - as I do want to continue seeing her. And I do NOT WANT to be hospitalized again.

I think the best thing you can do, is to talk about the issue with him....and try to explain all your feelings about it. You could even print out this thread and take it with you. After you talk to him about it, I'm sure it will be more clear what the right thing to do is.
Sending lots of hugs.....