Funny, I just watched a video tonight on Animal Planet and it mentioned that yorkies are not known to be good with children. I know a lot of people who have them and also have children....so please, don't yell at me. I know that it can work, but I also know that they are terriers and can be annoyed by children.
Here is a link to the video:
Top 100 Dogs : Videos : Animal Planet
If this pup came from an adult only home, your home may not be the right one for him.
You definitely should have a vet check him out to see if there is anything physically wrong. And, yes, hitting is not what you need to do. I can see removing him from the room where all of you are when he bites, but not as punishment...just a short time out to let him know that his behavior is unacceptable.