Wow! Poor little Petey and I am so sorry that you and your husband had to see and experience that - that had to be the most scary thing!
I am so happy to hear that Petey is doing better and that he will be ok. When I first began reading your post, I got so scared that he might not have made it, so I am so glad that he is ok.
Some dear friends of ours had this same thing happen to them and one of their small Chihuahuas - the dog that attached him, though, was a Black Lab. And he bit down right through little Cortez's ribcage. Thankfully, nothing was punctured and he was OK in the end as well.
Very best wishes to you and sweet Petey! I am relieved he is ok.