Since you said you don't know the previous owner, you wouldn't know what they fed him. Yorkies seem to have sensitive stomach so as others have suggested, changing food might be the first thing to try. From what I remember, Iams isn't the best quality of food.
If he likes the cat food b/c it's smaller and softer, I'd like to suggest soaking the kibbles in chicken broth (no sodium added) for a bit and then mush it up a little. If you google for homemade dog food recipies, you'll be able to find all sorts of recipies for food/snacks that might be cheaper/healthier.
As for whether he's full yorkie or not... You can buy a dna test kit to send in and find out if you're really curious. I believe they cost from $65 and up. Also, even 100% yorkies might not look like your "standard" yorkie that you'd see on tv/pictures. There are plenty that's WAY over 6-7 lbs, less then 6 lbs, have floppy ears, etc...
Thank you for rescuing him and giving him a loving home. Him "finding" you guys must be fate.
I'd love to see his picture!