Sheldon still thinks the lie he weaved to Penny is not good enough, so he tries to explain to Learnerd that the Leo he created not only a middle child, but a quintessential middle child from a broken home, to boot. And in psychological way, he thinks Leo actually gets more by rebelling against people than the help he got at the rehab.
And Learnerd absolutely thinks Sheldon goes nuts since he tried to explain this to him at 4 o'clock in the morning.
Sheldon then responded to Learnerd's bad by claiming that if it weren't Learnerd's initial and inadequate deceit, they wouldn't be put in the predicament like this where they are now.
Middle: the point furtherest from its edges
Quintessential: perfect and typical of its kind
Predicament: a difficult situation you don't wanna be at
Initial:beginning, the Capital letters of every word
Psycholigical: concerned with mind rather than physical
Inadequate: not good enough
Deceit: words purposedly intend to make people believe which is not true.