Hey Iveadream. I have about a combined year and a half experience with hanging. I have done both the hardcore hanging method where you only do one set but make it as heavy as possible and I have also done hanging where my goal is to hang at least two hours a day. I have gone as high as around 25 lbs of weight. I have also done sets that are as short as 20 minutes (the recommended set time) all the way to doing sets that are 1 and a half hours straight without stopping at all (that is with a compression hanger much like yours, not a vacuum hanger)
I say all that to say I have a decent amount of experience with hanging. The reason I am writing on your thread is that what you are experiencing is EXACTLY what happened to me. One day, after hanging for a consecutive 8 months I went ahead and did 2 hours of hanging. That night I met up with a girl I was seeing and we were about to have sex for the first time and I couldn't keep an erection for more than 5 seconds at a time. Needless to say I didn't end up having sex that night. After that I quit hanging for about half a year, and it took me a couple of months before my penis started getting decent quality erections again. In that time period I lost the inch I had gained.
My advice to you is this. Either discontinue hanging or add an extensive jelqing routine to what you are already doing. Lucky for me my penis has recovered now after a while, but I have read that erection problems like those you are experiencing and like I did are early warning signs that you are permanently damaging your penis.
If you want to continue, however, I think the only possible solution is to add jelqing to your routine because jelqing will stimulate blood flow and lead to increased erection quality.
Just my two cents, good luck.