Problem Getting Dog to Potty

My wife and I took a 1.5 year old male Bichon Frise from a coworker of my wife on March 29th. The first few days we noticed that he would not do his business if we were visible through the glass sliding door. He would come back to the door multiple times before he would go relieve himself and only if we were completely out of site. This task would take extra long in the mornings while I was preparing to go to work because he could see me in the kitchen. We would like to know that he used potty before leaving for the day so we end up spying through blinds trying to make sure he does. We keep him in a crate when we leave the house and he does really well. We believe that his previous owner spanked him for doing his business in the house thus creating this issue. We decided that we would keep an eye on him or keep him in the crate if we couldn't and take him outside on the leash to try and force him to potty in front of us and then reward him with praise and maybe a small treat. In response, he has went on a potty strike and refuses to potty at all now. I figured that after a small while of constant watching that he would eventually have to use the potty and we could show him that it's ok to do it in front of us. A few days back he held his pee for over 18 hours because we would not let him out of our site. I finally got worried and let him out alone and did the same ole spying while he peed. The morning after I got him to poop while on the leash and I rewarded him with a lot of praise. He then went on another strike until the following morning(Yesterday) when I finally got him to pee while on the leash. He was rewarded with a ton of praise and a treat. I made a huge deal out of it (The neighbors probably think I'm a wack job now!!) and he was super excited. I thought we had made some huge progress but then he continued the strike and ended pooping in his crate while we were at work. We just cleaned it up and pretended it didn't happen and continued with our leash efforts. Are we approaching this problem correctly? I am now having a hard time getting a good nights rest because any little movement or noise he makes in his crate wakes me becuase I think he may be using the potty in his crate. Any tips?

I don't know too much about his background. Only what my wife's coworker has told us and what I gathered on one visit to see him prior to taking him in. She had to get rid of him becuase she had more dogs than what was allowed in the city she lives in(Los Lunas, NM). She said that she bought him from a well respected breeder in this area as a puppy. The lady that owned him seemed really loving and caring but the man gave the impression that he wasn't for dogs in the house so was very strict. The dog may have had a bad experience. Our yard is really well fenced in and there is no chance of him getting out.

Thanks,

Manuel

P.S. We are also using "Go Potty" as his command to do his business.