I agree with everything Elise said. Her labs look great although her urine is a bit dilute as her urine specific gravity should be above 1.040. However, the unregulated diabetes could be causing her to drink more water which would drop her USG.
IMHO, your vet is headed in the wrong direction. She needs to test for pancreatitis now if Pepper is “off” and especially if she is not eating and has an acid tummy. Just for general info, pancreatitis sometimes presents with very obvious symptoms like nausea, vomiting, pain, inappetence, etc., a lot of the time, there’s nothing you can put your finger on but she seems “not quite right”. Your vet should run a snapfPL or specfPL (I prefer the latter) but you’ll need to fast for six hours. While that can be a challenge for a diabetic cat, what I’d do is fast overnight, have the test done first thing in the morning, and then shoot an hour late. I suspect that the sleeping more is due to the high BG.
You can also help the white foamy vomit from an acid tummy by having food in her tummy. A lot of times, over night, kitties will develop acid in their tummies so if you give her a snack, it might help. I had an autofeeder set up for 4 a.m. and it gave Gracie several freeze dried chicken treats and that stopped the acid vomiting. I don’t use anti acids and I believe they are way overused but an occasional one here and there is fine. Boiled chicken breast also works great for a treat.
I also think you should be raising the dose every six cycles by 0.5u until you start seeing yellow nadirs. If there is a way to get an “out the door” test in the morning and an “in the door” test when you get home, that would help put her pattern together. I’d also recommend a +2 at night as well as a before bed test as it looks like you’ve been doing.
Hope she feels better soon.